MOODY'S PLACES LONG-TERM CREDIT RATINGS OF NATIONWIDE MUTUAL AND AFFILIATES ON REVIEW FOR POSSIBLE DOWNGRADE(Aa2 Insurance Financial Strength); REVIEW PROMPTED BY CONTINUED WEAK PERFORMANCE OF P&C OPERATIONS
Moody's Investors Service placed the long-term credit ratings of Nationwide Mutual Insurance Company and its affiliates on review for possible downgrade. The review was prompted by continued weak performance in the company's core property and casualty insurance operations. Moody's will also evaluate Nationwide's proposed investment in Gartmore Investment Management, plc. The rating agency said that Nationwide's strategy to acquire Gartmore offers Nationwide Financial Services, Inc. (NFS) a strong complementary business line for its variable insurance products and that the investment makes sound strategic sense.
According to Moody's, the review of Nationwide's property and casualty operations will focus primarily on the causes of the company's weak earnings and the near-term prospsects for reversing declining profitability. In particular, Moody's said it would focus on the efficiency of the company's distribution channels, the effectiveness of its pricing policies and the competitive pressures to reduce rates in private passenger automobile insurance.
Moody's also said that it would consider the strategic and financial benefits to be gained from Nationwide's proposed investment in Gartmore. Moody's noted that the growth propects for retail mutual funds within Gartmore are good. Moreover, NFS's competitive position is expected to be enhanced by the integration of Gartmore's funds with NFS's variable products. The rating agency said that as financial services converge and more life insurers engage in asset management activities, NFS's ability to offer both fixed income and equity asset management, particularly on the retail side, will become increasingly critical. Moody's cautioned though that over the near-term it did not expect significant operating earnings to accrue to Nationwide from the acquisition. Moody's will also study the continued linkage between NFS and its parent and whether the rating of the two should continue to be tightly linked.
Moody's noted that the rating outlook for Nationwide has been negative since May 1998 reflecting Nationwide's adoption of a more aggressive risk profile designed to grow its property and casualty and long-term savings businesses. The rating agency has also noted during this period the gradual deterioration in the profitability of Nationwide's personal lines business, and that its profitability has lagged that of its peers.
The following ratings were placed on review for possible downgrade:
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;
Nationwide Assurance Company -- 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;
CalFarm 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.
The Prime-1 rating for the commercial paper program of Nationwide Life Insurance Company was confirmed.
Nationwide, based in Columbus, Ohio, is one of the country's largest diversified insurance and financial services organizations with assets of more than $115 billion as of December 31, 1999.
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