MOODY'S DOWNGRADES INSURANCE FINANCIAL STRENGTH RATINGS OF AETNA INC'S PRINCIPAL LIFE INSURANCE SUBSIDIARIES; CONFIRMS DEBT RATINGS OF AETNA INC.
New York, 07-09-97 -- Moody's Investors Service downgraded the insurance financial strength ratings and counterparty ratings of Aetna Inc.'s two principal life insurance subsidiaries. The rating agency also confirmed the debt and preferred stock ratings of Aetna Inc. and its subsidiaries.
The downgrade of Aetna Life Insurance and Annuity Company (ALIAC) to Aa3 from Aa2 and its counterparty rating to A1 from Aa3 is based primarily on the view that ALIAC faces heightened competition in the retirement-services market and will be challenged to differentiate its investment and servicing capabilities from those of high-performance peers. ALIAC is still heavily dependent on its agent sales force, which is a high-cost channel of distribution, Moody's said. Moody's believes many of ALIAC's competitors in the insurance and mutual fund industries are able to distribute retirement savings and investment products at lower cost. Additionally, expanded distribution, investment performance and breadth of proprietary asset management is critically important to ALIAC's profitability, the rating agency said. Moody's believes ALIAC is making appropriate changes to deal with these challenges, such as expanding its distribution capability by adding a financial planning firm, improving the investment performance in its funds, streamlining business processes, and changing the structure of its proprietary asset agreements. Notwithstanding the benefits from these changes, the rating agency believes the company will continue to lag industry leaders over the near to medium term. Despite these challenges, ALIAC continues to benefit from an established presence in the qualified annuity markets, its high-quality investment portfolio, and sound capitalization.
Aetna Insurance Company of America (AICA) is a wholly owned subsidiary of ALIAC and its insurance financial strength rating is based on the explicit support of ALIAC. Hence, AICA's insurance financial strength rating was lowered to Aa3 from Aa2 to reflect the same rating as ALIAC.
The downgrade of Aetna Life Insurance Company (ALIC) to A1 from Aa3 and its counterparty rating to A2 from A1 reflects the view that ALIC's principal continuing operations in the group medical and non-medical insurance markets will be subject to heightened competition. Moody's believes the company's near-to-medium term prospects for revenue growth rest somewhat on the success of selling group non-medical insurance products to the newly acquired members of U.S. Healthcare, which Moody's believes will emerge slowly. Income from other group insurance products, such as disability income and long-term care, are not expected to be significant in the near to medium term. Moody's believes that ALIC's capital needs will decline with the run-off of its fully guaranteed large case pension products, which were discontinued in 1993. As a result, the rating agency anticipates that more of ALIC's capital will be made available to its ultimate parent for alternative opportunities. Moody's believes, however, that ALIC continues to benefit from Aetna U.S. Healthcare's strong health care franchise, its high-quality bond portfolio, and declining exposure to commercial real estate.
The following ratings were downgraded:
Aetna Life Insurance Company -- insurance financial strength rating downgraded to A1 from Aa3; counterparty rating downgraded to A2 from A1.
Aetna Life Insurance and Annuity Company -- insurance financial strength rating downgraded to Aa3 from Aa2; counterparty rating downgraded to A1 from Aa3.
Aetna Insurance Company of America -- insurance financial strength rating downgraded to Aa3 from Aa2.
Ratings confirmed include the following:
Aetna Inc. -- preferred stock rating of "a2".
Aetna Services, Inc. -- senior debt rating of A2; provisional senior debt shelf rating of (P)A2; provisional subordinated debt shelf rating of (P)A3; provisional preferred stock shelf rating of (P)"a2"; counterparty rating of A2; and P-1 short-term rating for commercial paper.
Aetna Capital L.L.C. -- preferred stock rating of "a2" and provisional preferred stock shelf rating of (P)"a2".
Aetna Life Insurance Company of Canada -- insurance financial strength rating of A3.
The rating outlooks for Aetna Inc. and its subsidiaries are stable following these rating actions.
Aetna Inc., headquartered in Hartford, Connecticut, reported pro forma consolidated assets of $92 billion and shareholders' equity of $10.9 billion as of March 31, 1997.
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