Oldwick, NJ -(BUSINESS WIRE)- A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a ”and affirmed the financial strength rating (FSR) of A (Excellent) of Reliance Standard Life Insurance Company (RSL) (Chicago, IL) and First Reliance Standard Life Insurance Company (First Reliance) (New York, NY), the life/health subsidiaries of Delphi Financial Group, Inc. (DFG). Concurrently, A.M. Best has upgraded the ICRs to “a+” from “a ” and affirmed the FSR of A (Excellent) of Safety National Casualty Corporation (St. Louis, MO) and its reinsured affiliate, Safety First Insurance Company (Chicago, IL) (together referred to as Safety National), the property/casualty subsidiaries of DFG.
Additionally, A.M. Best has upgraded the ICR to “bbb+” from “bbb” and the existing debt ratings of DFG. All the above ratings have been removed from under review with positive implications and assigned a stable outlook. (Please see below for a detailed list of the debt ratings.)
These rating actions follow the recent closing of the transaction where DFG was acquired by Tokio Marine Holdings, Inc. (TMHD) (Japan) through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Company, Ltd. (Japan). Consequently, A.M. Best believes that DFG’s financial flexibility will benefit from TMHD’s strong capitalization, lower cost of capital and diversified business profile.
The acquisition widens the scope of TMHD’s international operations while increasing the group’s diversification into the U.S. employee benefits, asset accumulation and excess workers’ compensation markets. Given DFG’s established presence and strong historical performance, A.M. Best believes these operations will contribute meaningfully to TMHD’s operating and business profile. DFG and its subsidiaries, including its non-insurance subsidiary, Matrix Absence Management, Inc., will continue to operate autonomously with no significant changes to its management team or business model.
As with most major acquisitions, the transaction remains subject to integration risk. In the near to medium term, A.M. Best will evaluate the extent to which DFG is assimilated into TMHD’s risk management framework, including a review of DFG’s investment portfolio and risk tolerance. A.M. Best notes that TMHD has demonstrated expertise in completing significant transactions in the United States, having acquired Philadelphia Consolidated Holding Corp. and its subsidiaries in 2008 and the remaining 50% of First Insurance Company of Hawaii, Ltd. and its subsidiaries in 2011.
The ratings for RSL and First Reliance continue to reflect their established presence within the small to mid-sized employee benefits marketplace, stable operating profile, disciplined pricing philosophy and sound risk-adjusted capitalization. Offsetting factors include the challenges the group faces in the difficult economic and competitive environments, exposure to certain types of higher risk assets and interest rate risk within its group disability product line.
The ratings for Safety National continue to recognize its strong operating performance, solid risk-adjusted capitalization and established market presence within the excess workers’ compensation market.
Partially offsetting these positive rating factors are areas of ongoing, yet declining, adverse loss release development occurring on prior accident years and the impact of investment market fluctuations, which has hampered the group’s ability to internally generate capital. Despite these concerns, it is A.M. Best’s expectation that Safety National should generate surplus growth through strong earnings over the near term, absent significant dividends.
Prospectively, positive rating actions on DFG and its subsidiaries could occur as the operations become fully integrated and/or receive explicit support from TMHD. Factors that could lead to negative rating actions include a material decline in stand-alone capitalization levels or a change in A.M. Best’s view of the strategic importance of DFG to TMHD.
The following debt ratings have been upgraded:
Delphi Financial Group, Inc.—
— to “bbb+” from “bbb” on $250 million 7.875 % senior unsecured notes, due 2020
— to “bbb-” from “bb+” on $175 million fixed/floating rate junior subordinated notes due 2037
The following indicative shelf ratings have been withdrawn:
Delphi Financial Group, Inc.—
— “bbb” on senior unsecured
— “bbb-” on subordinated
— “bb+” on preferred stock