MOODY'S PLACES LONG-TERM RATINGS OF NATIONWIDE MUTUAL INSURANCE COMPANY (Aa2 for INSURANCE FINANCIAL STRENGTH) AND AFFILIATES ON REVIEW FOR POSSIBLE DOWNGRADE FOLLOWING ANNOUNCEMENT TO ACQUIRE ALLIED GROUP, INC.; CONFIRMS SHORT-TERM DEBT RATINGS
New York, 06-05-98 -- Moody's Investors Service placed the long-term ratings of Nationwide Mutual Insurance Company (Nationwide) and its affiliates on review for possible downgrade following Nationwide's announcement that it has entered into a definitive agreement to acquire all of the common stock of Allied Group, Inc. In addition, the Board of Directors of Allied Mutual Insurance Company has entered into a definitive agreement providing for the merger of Allied Mutual into Nationwide Mutual Insurance Company. The agreement provides that Allied Mutual policyholders' interests would be converted into rights as policyholders of Nationwide. Allied Mutual policyholders will also receive an extraordinary dividend of $110 million in cash as part of the proposed transaction. Also, Nationwide will pay $30 per share for the publicly held common shares of Allied Life Financial Corporation.
Moody's stated that its rating review will primarily focus on the operating and integration risks presented by the proposed acquisition as well as the prospects for revenue enhancement that may be developed from the addition of Allied to the Nationwide family.
Moody's said that the proposed acquisition and merger appear to make strategic sense primarily because they offer Nationwide the opportunity to build upon its independent agency channel of distribution, which it began when it acquired the independent agency operations of TIG Holdings in 1997. In addition, Allied's premiums are derived principally from geographic regions in which Nationwide currently has little market share. The rating agency noted, however, that it believes the proposed transaction is an aggressive step for Nationwide and reflects the increasingly competitive marketplace for personal lines writers. Moreover, it reflects 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.
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 Mutual Group - a collection of property and casualty insurers - generated about 80% of the operating earnings in 1997 for the 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 placed on review for possible downgrade:
Nationwide CSN Trust -- Ratings on trust notes of A1 and ratings on trust certificates of A2;
Nationwide Mutual Insurance Company -- Insurance financial strength rating of Aa2; A1 subordinated debt rating on the company's surplus notes;
Colonial Insurance Company of California -- Insurance financial strength rating of Aa2;
Farmland Mutual Insurance Company -- Insurance financial strength rating of Aa2;
Nationwide Agribusiness Insurance Company -- Insurance financial strength rating of Aa2;
Nationwide Mutual Fire Insurance Company -- Insurance financial strength rating of Aa2;
Nationwide Property and Casualty Insurance Company -- Insurance financial strength rating of Aa2;
Employers Insurance of Wausau a Mutual Company -- Insurance financial strength rating of Aa2;
Wausau Business Insurance Company -- Insurance financial strength rating of Aa2;
Wausau General Insurance Company -- Insurance financial strength rating of Aa2;
Wausau Underwriters Insurance Company -- Insurance financial strength rating of Aa2;
Nationwide General Insurance Company -- Insurance financial strength rating of Aa2;
Scottsdale Insurance Company -- Insurance financial strength rating of Aa2;
Nationwide Life Insurance Company -- Insurance financial strength rating of Aa2
Nationwide Life and Annuity Insurance Company -- Insurance financial strength rating of 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 following rating was confirmed:
Nationwide Life Insurance Company -- Prime-1 rating for the company's commercial paper program.
Nationwide Mutual Group, located in Columbus, Ohio, is one of the largest writers of personal and commercial lines insurance in the USA.
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