MOODY'S DOWNGRADES VARIOUS RATINGS OF NATIONWIDE MUTUAL GROUP: INSURANCE FINANCIAL STRENGTH RATING OF LEAD INSURER TO Aa2; SURPLUS NOTES TO A1
New York, March 27, 1996 -- Moody's Investors Service has downgraded to Aa2, from Aa1, the insurance financial strength
rating of Nationwide Mutual Insurance Company, lead member of the Nationwide Insurance Enterprise, following a review. Moody's also
lowered ratings on the company's surplus notes to A1, from Aa3. Ratings on various affiliated life and property and casualty
insurers were also downgraded. The Prime-1 rating of Nationwide Life Insurance Company was not under review, and is confirmed.
According to Moody's, these rating actions reflect Nationwide's continuing exposure to catastrophe loss risks, as
well as uncertainty surrounding its asbestos and pollution exposures.
Nationwide is exposed both to natural catastrophes and to adverse development on claims for asbestosis and pollution losses,
reflective of its strong franchises in both personal and commercial lines insurance. Moody's said that the combination of
these exposures relative to economic capital of the enterprise was an important consideration in its rating actions.
Since its affiliation with the Wausau Insurance Companies over a decade ago, Nationwide has recorded approximately $3
billion of adverse development on reserves, including the recent asbestos and environmental reserve strengthening announced in
December 1995, more than offsetting the favorable development on post-affiliation accident years. Even with these actions, Moody's
believes that the ultimate cost of asbestos and pollution claims could exceed current reserve levels.
Moody's remarked that as a major insurer of personal lines exposures along the Eastern Seaboard of the USA, Nationwide's
property/casualty operations are inherently subject to substantial losses resulting from natural catastrophes, such as severe
windstorms. Moody's believes that, although Nationwide is managing its catastrophe exposures more aggressively, such
exposures will likely remain material risks.
Furthermore, Moody's noted that Nationwide's regulatory capital includes surplus notes, which are less robust forms of
capital. In addition, life insurance operations and other affiliates held by the parent company will put continuing pressure
on the firm's capital structure.
Nationwide Life Insurance Company is a large and fast-growing life insurer. Nationwide's life insurance operations have
increasingly pursued lower-margin asset accumulation business to complement a strong presence in the public-employee deferred
compensation market. The growth in this segment of the business has benefited from competitive pricing as well as from
identification with the well-regarded Nationwide brand name. Moody's considers the strength of these life insurance operations
to be favorably impacted by linkage to the property/casualty franchise due to the ownership, common name and -- for certain
products -- common distribution system. However, these beneficial linkages have been weakening over time as variable annuity
products distributed via pension consultants, retail brokers and financial institutions become the dominant focus.
Going forward, Moody's believes that Nationwide's property/casualty and life insurance operations will continue to
be important participants in their chosen business lines -- especially the property/casualty side -- with solid value creation
capacity backed by sound management.
The following ratings were affected:
Nationwide CSN Trust -- Ratings on trust notes were downgraded to A1, from Aa3. The rating on trust certificates was lowered
to A2, from A1.
Nationwide Mutual Insurance Company's insurance financial strength rating was downgraded to Aa2, from Aa1. The company's
surplus notes were downgraded to A1, from Aa3.
Other property/casualty pool members -- Insurance financial strength ratings downgraded from Aa1 to Aa2. These companies
include Colonial Insurance Company of California, Farmland Mutual Insurance Company, Nationwide Agribusiness Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Property and Casualty Insurance Company, Employers
Insurance of Wausau a Mutual Company, Wausau Business Insurance Company, Wausau General Insurance Company, Wausau
Underwriters Insurance Company, Nationwide General Insurance Company, and Scottsdale Insurance Company.
Nationwide Life Insurance Company -- Insurance financial strength rating downgraded to Aa2, from Aa1.
West Coast Life Insurance Company -- Insurance financial strength rating downgraded to A2, from A1.
Nationwide Mutual Group, located in Columbus, Ohio, is one of the largest writers of personal and commercial lines insurance in
the USA. In 1995, Nationwide wrote $7.6 billion of property/casualty premium, and ended the year with statutory surplus of $5.1 billion.
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