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17 Sep 2009
New York, September 17, 2009 -- Moody's Investors Service has affirmed the Aaa insurance financial strength
rating of United Services Automobile Association (USAA) as well as the
Aa1 insurance financial strength ratings of USAA Life Insurance Company
(USAA Life) and USAA Life Insurance Company of New York (USAA Life-NY).
Moody's has also affirmed the parent-supported Aa1 senior
unsecured debt rating and Prime-1 commercial paper rating of USAA
Capital Corporation (CapCo). The rating outlook for these entities
"USAA has remained profitable and has expanded its capital base
through the US economic recession and the financial markets crisis,"
said Bruce Ballentine, lead analyst for USAA. "The
rating affirmation reflects USAA's formidable market presence within
the military community along with its efficient operations and sound balance
sheet." USAA promotes strong member loyalty by delivering
an array of competitive financial products through low-cost direct
channels, such as member referrals, the Internet, telephone
and mail. Such direct distribution is well suited to the highly
mobile military community, said Moody's.
USAA's strengths are tempered by its substantial exposure to natural
catastrophes. Many of USAA's members live in Texas, California
and Florida -- areas prone to windstorms and earthquakes.
USAA mitigates this risk through extensive risk modeling, limiting/ceasing
writings in certain areas, tightening policy terms, and maintaining
a large and diversified reinsurance program. Moody's also
noted that management of enterprise risks (financial, operational,
legal/regulatory and others) is a growing challenge as USAA offers diversified
products and services to an expanding target market. For instance,
the company has experienced some deterioration in credit metrics and asset
values in its consumer banking and commercial real estate investment units
in connection with the weak economy and declining property values.
Moreover, any significant expansion of USAA's target market
(such as the recent addition of several new membership categories) could
erode the overall credit profile of the membership base. Moody's
will monitor the diversified operations and the evolving target market
for indications of heightened risk and/or declining business performance.
The ratings on USAA Life and USAA Life-NY reflect their strong
capitalization, profitability, and investment quality,
along with the ownership and implicit support from USAA. "Access
to the USAA membership represents a unique competitive advantage for the
life companies," said Ann Perry, lead analyst for these
entities. "Being part of USAA also enhances the operating
efficiencies and financial flexibility of the life operations."
Offsetting these strengths to some extent, the life companies have
a considerable proportion of their liabilities subject to disintermediation
risk, and they rely heavily on the direct marketing channel.
Given the current low interest rate environment, Moody's also remains
concerned about the margins on older blocks of fixed annuities and interest
sensitive life insurance, which have relatively high (e.g.,
4.0%-4.5%) minimum guaranteed interest
The ratings on CapCo reflect a net worth maintenance agreement from USAA
along with CapCo's diversified sources of liquidity. CapCo
serves as a downstream holding company for USAA's banking, mutual
funds and real estate management operations.
Moody's cited the following factors that could lead to a downgrade
of USAA's ratings: (i) deterioration in the core property
& casualty (P&C) underwriting results (e.g.,
a combined ratio above 100%), (ii) a material increase in
gross underwriting leverage (e.g., above 2x),
(iii) adjusted financial leverage exceeding 10%, (iv) a significant
shift in the group's business mix away from P&C insurance,
or (v) material credit deterioration in the affiliated business units.
Together with its subsidiaries, USAA is the leading provider of
insurance and related financial services to US military officers,
enlisted personnel and their families. On a consolidated GAAP basis,
USAA reported total revenues of $8.6 billion and net income
of $1.4 billion for the first half of 2009. Total
net worth was $15.8 billion as of June 30, 2009.
The last rating action affecting USAA took place on September 10,
2007, when Moody's affirmed the Aaa insurance financial strength
rating with a stable outlook.
The principal methodologies used in rating USAA and its subsidiaries were
Moody's Global Rating Methodology for Property and Casualty Insurers,
published in July 2008, and Moody's Global Rating Methodology for
Life Insurers, published in September 2006, both available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies sub-directory on Moody's
Moody's has affirmed the following ratings with a stable outlook:
United Services Automobile Association -- insurance financial strength
USAA Life Insurance Company -- insurance financial strength at Aa1;
USAA Life Insurance Company of New York -- insurance financial strength
USAA Capital Corporation -- backed senior unsecured debt at Aa1,
backed commercial paper at Prime-1, guaranteed senior unsecured
notes (guaranteed by the Federal Deposit Insurance Corporation under its
Temporary Liquidity Guarantee Program) at Aaa.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually pay senior policyholder claims and
obligations. For more information, please visit our website
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Moody's affirms USAA's financial strength at Aaa; outlook stable
Financial Institutions Group
Moody's Investors Service
No Related Data.
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