OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best Co. has placed under review with positive implications the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Reliance Standard Life Insurance Company (Chicago, IL) and First Reliance Standard Life Insurance Company (New York, NY), the primary life/health insurance subsidiaries of Delphi Financial Group, Inc. (DFG) (NYSE: DFG). Concurrently, the financial strength rating of A (Excellent) and issuer credit ratings of “a” have been placed under review with positive implications for Safety National Group, whose members include Safety National Casualty Corporation (St Louis, MO) and its reinsured affiliate, Safety First Insurance Company (Chicago, IL), the primary property/casualty subsidiaries of DFG. Additionally, A.M. Best has placed under review with positive implications the ICR of “bbb” and the existing debt ratings of DFG. (See below for a detailed listing of the debt ratings.)
The under review status follows yesterday’s announcement that Tokio Marine Holdings, Inc. (TMHD) (Japan) and DFG have entered into a definitive agreement under which TMHD will acquire all outstanding shares of DFG. If consummated, the transaction will be effected through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd (TMNF) (Japan), which currently holds a FSR of A++ (Superior) and an ICR of “aa+” from A.M. Best.
The total transaction value is approximately $2.7 billion and is expected to close in the second quarter of 2012, subject to U.S. and Japanese regulatory approvals. Upon closing, A.M. Best anticipates that DFG and its subsidiaries will continue to operate autonomously with no significant changes to its management team or business model. Core product offerings of DFG include group employee benefits, asset accumulation and excess workers’ compensation products, along with integrated disability and absence management services offered through its noninsurance subsidiary, Matrix Absence Management, Inc.
The transaction is consistent with TMHD’s strategy of expanding its geographic footprint internationally and lends diversification to its predominately property/casualty operating profile. DFG is expected to benefit from improved financial flexibility associated with TMHD, which is the oldest and largest property/casualty insurer in Japan, having written approximately $30 billion in consolidated net premiums in 2010.
While the transaction remains subject to execution risk, TMHD has demonstrated expertise in completing significant transactions in the United States, having acquired Philadelphia Consolidated Holding Corp and its subsidiaries in 2009 and, most recently, the remaining 50% of First Insurance Company of Hawaii, Ltd. and its subsidiaries. Post-closing, A.M. Best believes it is likely that DFG’s ICRs and debt ratings will be upgraded at least one notch. Conversely, failure to successfully consummate the transaction is likely to result in DFG’s ratings being removed from under review and reassessed based on their current stand-alone assessments.
The ratings of TMNF remain unchanged. A.M. Best is of the opinion that the capitalization of TMNF is strong enough to absorb the DFG acquisition at the level of its current ratings.
The following debt ratings have been placed under review with positive implications:
Delphi Financial Group, Inc.
- “bbb” on $250 million 7.875% senior unsecured notes, due 2020
- “bb+” on $175 million fixed/floating rate junior subordinated debentures, due 2037
The following indicative shelf ratings have been placed under review with positive implications:
Delphi Financial Group, Inc.
- “bbb” on senior unsecured debt
- “bbb-” on subordinated debt
- “bb+” on preferred stock