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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

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Rating Action:

MOODY'S INCREASES RATING DIFFERENTIAL BETWEEN U.S. LIFE INSURANCE OPERATING AND HOLDING COMPANIES

11 Jul 2002
MOODY'S INCREASES RATING DIFFERENTIAL BETWEEN U.S. LIFE INSURANCE OPERATING AND HOLDING COMPANIES

Ratings on Seven U.S. Life Insurance Groups Changed

New York, July 11, 2002 -- Moody's Investors Service today adjusted the ratings on seven U.S. life insurance groups. These rating adjustments were driven primarily by a change in Moody's rating methodology that increasingly emphasizes expected loss. In May, Moody's announced that it would likely be increasing the rating gap from two to three notches between the Insurance Financial Strength Ratings (IFSR) of several U.S. life insurance operating companies and the senior debt rating at their holding companies in the coming months.

"Notching" refers to the general practice of making rating distinctions among the different liabilities of a single entity or of closely related entities. The rating agency's decision to change its notching convention was prompted by its previous analysis of life insurers' historical default rates and loss-given-default data compared to Moody's corporate bond default data. The study concluded that U.S. life insurers perform favorably on both measures compared to the corporate bond averages. Moody's more fully explained its changes in notching practices in a special comment that it published in May 2002.

The rating agency says that the rating adjustments resulted in either an upgrade of the operating company's IFSR or a downgrade of the holding company's senior debt, depending on the specific circumstances and analysis of each company. Moody's emphasizes that it is important to recognize that these rating adjustments were primarily driven by the rating methodology change, and not necessarily by changes in the rating agency's views of the credit fundamentals of these firms.

Moody's change in notching practice has affected the following seven life insurance groups:

1. AFLAC, INC.

Moody's upgraded the IFSR of American Family Life Assurance Company of Columbus (AFLAC) to Aa2 from Aa3. AFLAC's parent, AFLAC Inc., currently has an A2 senior unsecured debt rating. AFLAC's strengths include its strong market position in cancer life insurance in Japan, its established corporate agency distribution channel in Japan, a conservatively managed investment portfolio, strong capital position, and growing U.S. operations. These strengths are offset primarily by the concentration of AFLAC's business in Japan and the weak Japanese economy, an increasingly competitive Japanese insurance market due to deregulation, Japanese currency exchange rate risk and AFLAC Inc.'s need for dividends to meet its debt service requirements.

The following rating was upgraded; the rating outlook is stable:

American Family Life Assurance Company of Columbus

Insurance Financial Strength Rating to Aa2 from Aa3

2. Jefferson-Pilot Corp.

The rating agency downgraded the ratings of Jefferson-Pilot Corporation's (JPC) capital trust securities to A3 from A2. The implied senior unsecured debt rating of JPC is now A2. Moody's believes that JPC's major operating subsidiaries--Jefferson-Pilot Life Insurance Company and Jefferson Pilot Financial Insurance Company--are well placed at their current Aa2 IFSR level. The credit ratings of JPC and its life insurance subsidiaries are based on the companies' solid capitalization, cost-efficient operations, diversified distribution, and a strong management team. These strengths are tempered by the company's focus on the sale of interest-sensitive products, the challenges of growing its life insurance operations in a highly competitive environment, the recent decline in operating company capitalization, and the potential for further insurance company acquisitions.

The following ratings were downgraded; the rating outlook is stable:

Jefferson-Pilot Capital Trust A

Preferred Stock to A3 from A2

Jefferson-Pilot Capital Trust B

Preferred Stock to A3 from A2

3. Ohio National Financial Services, Inc.

Moody's downgraded the rating on the senior unsecured notes of Ohio National Financial Services, Inc. (ON Financial) to Baa1 from A3. ON Financial is an intermediate holding company that operates though its subsidiaries, primarily the Ohio National Life Insurance Company (ONLIC, A1 IFSR) and its wholly owned stock subsidiary, Ohio National Life Assurance Corporation (ONLAC, A1 IFSR). The rating of the surplus notes issued out of ONLIC (A3) as well as the insurance financial strength ratings of ONLIC and ONLAC remain unchanged. The rating outlook is stable.

The company's current ratings are supported by the consistent execution of its strategy, the result of low unit costs, a niche individual life operation, and strong product development capabilities. Offsetting the company's strengths is its exposure to spread products, potential credit losses associated with current economic conditions, and the risks affiliated with recent and potential acquisitions.

The following rating was downgraded; the rating outlook is stable:

Ohio National Financial Services, Inc.

Senior unsecured notes to Baa1 from A3

4. Presidential Life Corp.

Moody's downgraded Presidential Life Corporation's (PLFE) senior unsecured debt to Ba1 from Baa3. Operating through its principal subsidiary, Presidential Life Insurance Company (Presidential Life, Baa1 IFSR), PLFE focuses primarily on the sale of individual fixed annuities, and sales have been growing rapidly in recent years. The company benefits from its consistent operating profitability, excellent cost controls, and competitive fixed annuity product offering. Offsetting these strengths are the company's dependence on fixed annuity products, its declining statutory capitalization, and the relatively high risk profile of its investment portfolio. In 2001, Presidential Life incurred a net statutory loss of $59 million, after realized capital losses of $77 million, primarily on asset impairments, which are expected to continue to adversely impact the company in 2002.

The following rating was downgraded; the rating outlook is stable:

Presidential Life Corporation

Senior unsecured debt to Ba1 from Baa3

5. Principal Financial Services Inc.

Moody's downgraded the senior unsecured debt rating of Principal Financial Group (Australia) Pty Ltd (which has been assumed by Principal Financial Services, Inc.) to A2 from A1. Moody's recognizes the operating company--Principal Life Insurance Company's (Aa2 IFSR; A1 surplus notes)--leadership in the market for pension products, its strong financial discipline, and its revenue and earnings diversity from other life insurance and non-insurance businesses. Offsetting these strengths are the intense competition and narrowing margins in its core pension markets; the growth of its investment-only institutional products, and significant growth in its commercial mortgage, real estate, and mortgage banking activities, which have greater earnings volatility and risks than traditional life insurance and pensions.

The following rating was downgraded; the rating outlook is stable:

Principal Financial Group (Australia) Pty Ltd

Senior debt to A2 from A1

6. Protective Life Corp.

Moody's raised the IFSRs of Protective Life Insurance Company and West Coast Life Insurance Company to Aa3 from A1. Both companies are wholly owned subsidiaries of Protective Life Corporation (Protective Life, A3 senior unsecured debt). Moody's says the group benefits from its broad product offering and multiple distribution channels that combine to provide it with diverse sources of revenue and earnings. Protective Life also has six established and consistently profitable operating divisions that contribute to its strong overall profitability, as well as a high quality bond portfolio and ample liquidity. In addition, the company has become a leading participant in the term life insurance market, is competitive in the fixed annuity market, and has an established core competency in acquiring other companies and blocks of business. Offsetting these strengths is Protective Life's modest level of statutory capitalization, the moderately high financial leverage at its holding company, and its significant exposure to institutional spread business and to interest-sensitive assets.

The following ratings were upgraded; the rating outlook is stable:

Protective Life Insurance Company

Insurance Financial Strength Rating to Aa3 from A1

West Coast Life Insurance Company

Insurance Financial Strength Rating to Aa3 from A1

7. Reinsurance Group of America, Inc.

Moody's downgraded the credit ratings of Reinsurance Group of America, Inc. (RGA), (senior debt to Baa1 from A3), and RGA Capital Trust I and II. Moody's says that RGA's ratings are based on its operating company's (RGA Reinsurance Company--A1 IFSR) solid position in the U.S. mortality reinsurance market, good performance in the company's core domestic operations, and adequate capitalization. Moody's remarks, however, that RGA's strengths are somewhat offset by the potential volatility in reinsurance results, as well as by potential volatility from non-traditional forms of reinsurance.

The following ratings were downgraded; the rating outlook for the RGA group is stable:

Reinsurance Group of America, Inc.

Senior debt to Baa1 from A3

Senior debt to (P)Baa1 from (P)A3

Subordinated debt to (P)Baa2 from (P)Baa1

Preferred stock to (P)Baa3 from (P)Baa2

RGA Capital Trust I

Preferred stock to Baa2 from Baa1

Preferred stock to (P)Baa2 from (P)Baa1

RGA Capital Trust II

Preferred stock to (P)Baa2 from (P)Baa1

New York
Robert Riegel
Managing Director
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert P. Donohue
VP - Senior Credit Officer
Life Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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