MOODY'S CONFIRMS CREDIT RATINGS OF NATIONWIDE MUTUAL INSURANCE COMPANY (Aa2 for INSURANCE FINANCIAL STRENGTH) AND CERTAIN AFFILIATES; OUTLOOK CONTINUES AS NEGATIVE; WAUSAU INSURANCE REMAINS ON REVIEW FOR POSSIBLE DOWNGRADE FOLLOWING ANNOUNCEMENT TO AFFILI
Moody's Investors Service confirmed the credit ratings of Nationwide Mutual Insurance Company (Nationwide) and its affiliates, except those of the Wausau Companies. These rating actions complete a review for possible downgrade of the credit ratings of Nationwide and its affiliates that began on June 5, 1998 following Nationwide's announcement that it had entered into a definitive agreement to acquire all of the common stock of Allied Group, Inc. In addition Allied Mutual Insurance Company has merged into Nationwide Mutual Insurance Company, effective October 1, 1998.
The Aa2 insurance financial strength ratings of Employers Insurance of Wausau a Mutual Company, Wausau Business Insurance Company and Wausau General Insurance Company remain on review for possible downgrade following Nationwide's announcement to de-affiliate with those companies.
Moody's stated that its confirmation of Nationwide's ratings is based on the view that the acquisition of Allied creates a relatively balanced set of opportunities and risks for Nationwide. The rating agency believes that the addition of Allied will improve Nationwide's geographic balance of business, which should help to provide earnings stability. Allied's multi-channels of distribution are expected to enhance Nationwide's competitive reach in the personal lines marketplace.
The rating agency stated, however, that the acquisition of Allied highlights Nationwide's increased need for scale in its independent agency operations and for broader distribution of its mainstay products--auto and homeowners insurance. Moody's also believes that integration risk is substantial, and the ability of Nationwide to produce risk-adjusted returns superior to those available from its investment portfolio (from which the acquisition will be financed) may be difficult to attain over the near to medium term.
Overall, Moody's believes that the opportunities presented by the Allied acquisition are offset somewhat by Nationwide's adoption of a more aggressive risk profile designed to grow it property and casualty and long-term savings businesses. Additionally, Moody's expects that profitability in Nationwide's core business of auto and homeowners insurance is likely to lag its high performance peers over the near to medium term. For these reasons, Moody's continues to maintain a negative outlook for the insurance financial strength ratings and long-term securities' ratings of members of the Nationwide Enterprise.
Moody's current Aa2 insurance financial strength ratings of the leading intercompany pool members within Nationwide Mutual Group are based on the group's strong market position in personal insurance lines, its solid balance sheet, and its conservative capital structure. Nationwide is the sixth-largest U.S. property and casualty insurer, with a business mix that is roughly 63% personal and 37% commercial. Offsetting these strengths is the group's modest profitability, constrained by weak results in commercial lines as well as volatility in its personal lines business. Like many insurers, Nationwide is exposed to potentially large environmental and asbestos claims, as well as to natural catastrophes, which, in the aggregate, we believe represent material risks. Nationwide Insurance Enterprise, a mutually owned family of companies engaged in three core businesses: Personal Property and Casualty Insurance, Long-term Savings, and Commercial Insurance Services.
The following ratings were confirmed:
Nationwide CSN Trust -- Ratings on trust notes at A1 and ratings on trust certificates at A2;
Nationwide Mutual Insurance Company -- Insurance financial strength rating at Aa2; A1 subordinated debt rating on the company's surplus notes;
Colonial Insurance Company of California -- Insurance financial strength rating at Aa2;
Farmland Mutual Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide Agribusiness Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide Mutual Fire Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide Property and Casualty Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide General Insurance Company -- Insurance financial strength rating at Aa2;
Scottsdale Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide Life Insurance Company -- Insurance financial strength rating at Aa2
Nationwide Life and Annuity Insurance Company -- Insurance financial strength rating at Aa2;
Nationwide Financial Services, Inc. -- A1 senior debt rating and A2 junior subordinated debt rating; and
Nationwide Financial Services Capital Trust -- "a1" preferred stock rating.
Nationwide Life Insurance Company -- Prime-1 rating for the company's commercial paper program.
The outlook for long-term ratings of the Nationwide Enterprise Companies is negative following this rating action.
The following ratings remain on review for possible downgrade:
Employers Insurance of Wausau a Mutual Company -- Insurance financial strength rating at Aa2;
Wausau Business Insurance Company -- Insurance financial strength rating at Aa2;
Wausau General Insurance Company -- Insurance financial strength rating at Aa2;
Wausau Underwriters Insurance Company -- Insurance financial strength rating at Aa2;
The $93 billion Nationwide Insurance Enterprise, based in Columbus, Ohio, is one of the country's largest diversified insurance and financial services organizations and a Fortune 500 company. Nationwide is the country's fourth-largest auto insurer and fifth-largest homeowners insurer.
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