New York, May 16, 2012 -- Moody's Investors Service has upgraded the senior debt rating of Delphi
Financial Group, Inc. (Delphi - NYSE: DFG) to
Baa2 from Baa3 and the insurance financial strength (IFS) ratings of DFG's
wholly-owned operating companies, Reliance Standard Life
Insurance Company (Reliance Standard) and Safety National Casualty Corporation
(Safety National) to A2 from A3, upon the completion of the acquisition
of Delphi for $2.7 billion by Tokio Marine Holdings,
Inc. (Tokio Marine: ultimate parent of Tokio Marine &
Nichido Fire Insurance Co., Ltd, IFS at Aa3,
stable). In addition, all other outstanding debt ratings
of Delphi Financial Group have been upgraded by one notch (see list below).
The outlook on Delphi and its subsidiaries is stable. The rating
action concludes a review that was initiated on December 21, 2011,
upon the announcement of a definitive agreement of the proposed transaction
between Tokio Marine and Delphi.
RATINGS RATIONALE
Commenting on the upgrade of Delphi's and its affiliates' ratings,
Moody's said that the acquisition provides Delphi and its subsidiaries
the benefits of being part of the larger Tokio Marine group, with
greater financial resources and stronger credit profile. Vice President,
Neil Strauss, added, "We view the transaction as positive
to Delphi's life and property casualty operations in terms of strengthening
their financial flexibility and risk management."
The rating agency said that the upgrade of Reliance Standard's and
Safety National's IFS ratings incorporates the benefit of implicit
support from Tokio Marine, whose financial profile reflects strong
capital and liquidity resources. The companies' A2 IFS ratings
incorporate one notch of uplift from their standalone credit profiles.
While the one notch of uplift recognizes the benefits of financial support
from Tokio Marine, the credit for uplift is tempered by Moody's
view that (1) Delphi companies are relatively small compared to Tokio
Marine, (2) Delphi companies are niche insurers not necessarily
aligned with new parents' product strategy and (3) Delphi will not
be fully integrated operationally, structurally or brand-wise
for the foreseeable future.
Reliance Standard Life Insurance Company
Moody's commented that the A2 IFS rating on Reliance Standard reflects—in
addition to the benefit of parental support—the company's established
position in the group employee benefits market. Reliance Standard
is well positioned in the small-to-medium size case group
employee benefits market and its solid underwriting discipline is demonstrated
by its consistently favorable combined ratio for this business.
In addition, capitalization is good on a risk-adjusted basis
and liquidity is strong. The rating agency added that the company's
strong financial profile is partially offset by its modest overall market
presence and limited diversification among insurance products and distribution
as compared to other A-rated life insurance companies.
Safety National Casualty Corporation
Moody's commented that Safety National's A2 IFS rating reflects—in
addition to the benefit of parental support—its presence in the
excess workers' compensation market, where the company has a market
share of approximately 30%. The company also benefits from
a high level of management expertise and experience within its chosen
niche, a good earnings track record, and good quality investment
portfolio. These strengths are offset by the fundamental characteristics
of the excess workers' compensation market, which has a high risk
profile owing to its very long loss payout patterns and high degree of
volatility in results. Because of the inherent challenge in accurately
estimating loss reserves at Safety National, Moody's expects that
the company will maintain a significant capital buffer in the form of
readily available liquid assets at its parent company, Delphi Financial
Group.
Delphi Financial Group
Moody's stated that the Baa2 senior debt rating of the holding company,
Delphi, is notched down from the A2 IFS ratings of its principal
operating subsidiaries, Reliance Standard and Safety National,
by 3 notches, which is the standard notching treatment. Though
the two primary subsidiaries are in differing business lines, we
do not give diversification credit to narrow the notching as Moody's believes
that the group's excess workers' compensation insurance and group disability
insurance have similar business and economic characteristics, and
thus could potentially have reasonable levels of correlation, particularly
in a tail event.
Ratings Drivers
Moody's said the following could lead to an upgrade of Delphi's
ratings: (1) Tokio Marine provides explicit support for Delphi;
(2) upgrade of the IFS rating of Reliance Standard Life Insurance Company,
and/or Safety National Casualty Corp. Conversely, the following
could lead to a downgrade of Delphi's ratings: (1) reduction
in support from Tokio Marine; (2) downgrade of the rating of Tokio
Marine and its affiliates; (3) downgrade of the rating of Reliance
Standard Life Insurance Company, and/or Safety National Casualty
Corp.
The following could lead to an upgrade of Reliance Standard's rating:
(1) Tokio Marine provides explicit support; (2) NAIC RBC ratio sustained
at the 425% level; and (3) significant diversification among
lines of business and distribution. The following could lead to
a downgrade of Reliance Standard's rating: (1) a reduction
in support from Tokio Marine; (2) downgrade of Tokio Marine;
(3) NAIC RBC ratio maintained below 300%; (4) return on surplus
below 5%.
Moody's noted that Safety National's business profile as an excess
workers' compensation company somewhat limits its intrinsic rating at
the current level, given the mono-line nature of the company,
its very long loss payout pattern, and the high severity,
low frequency characteristics of its business. However, the
following could lead to an upgrade of Safety National's rating:
Tokio Marine provides explicit support. The following could lead
to a downgrade of Safety National's rating: (1) a reduction
in support from Tokio Marine; (2) downgrade of Tokio Marine;
(3) gross underwriting leverage greater than 4x; (4) adverse reserve
development greater than 7% of prior year reserve; (5) sudden
losses amounting to more than 15% of surplus; (6) return on
surplus below 5%.
The following ratings have been upgraded, with a stable outlook:
Delphi Financial Group, Inc. -- senior unsecured
debt to Baa2 from Baa3, junior subordinate debt to Baa3(hyb) from
Ba1(hyb); provisional senior debt shelf to (P)Baa2 from (P)Baa3;
provisional subordinated debt shelf to (P)Baa3 from (P)Ba1; provisional
preferred shelf to (P)Ba1 from (P)Ba2;
Reliance Standard Life Insurance Company -- insurance financial
strength rating to A2 from A3;
Safety National Casualty Corp. -- insurance financial
strength rating to A2 from A3.
Delphi Financial Group, Inc. has its operations headquartered
in New York, NY. As of March 31, 2012, it held
$9.1 billion in assets and shareholders' equity was $1.9
billion.
Reliance Standard Life insurance Co., headquartered in Philadelphia,
PA, reported total assets of $4.6 billion and statutory
policyholders' surplus of $466 million as of Dec.
31, 2011.
Safety National Casualty Corporation, headquartered in St.
Louis, MO, reported total assets of $2.9 billion
and statutory policyholders' surplus of $844 million as of
Dec. 31, 2011.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. Please see Moody's website at www.moodys.com/insurance
for more information.
The methodologies used in this rating were Moody's Global Rating Methodology
for Property and Casualty Insurers published in May 2010, and Moody's
Global Rating Methodology for Life Insurers published in May 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
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information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Neil Strauss
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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SUBSCRIBERS: 212-553-1653
Moody's upgrades Delphi Financial (senior to Baa2) and subsidiaries following Tokio Marine acquisition; stable outlook
