Oldwick, NJ -(BusinessWire)- A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the life/health subsidiaries, Reliance Standard Life Insurance Company (Chicago, IL) and First Reliance Standard Life Insurance Company (New York, NY) (together referred to as Reliance Standard), as well as the property/casualty subsidiaries, Safety National Casualty Corporation, Safety Specialty Insurance Company (both domiciled in St. Louis, MO) and Safety First Insurance Company (Chicago, IL) (together referred to as Safety National) of Delphi Financial Group, Inc. (DFG). DFG is a direct subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc. (Tokio Marine), Japan’s largest non-life insurance organization.
Concurrently, A.M. Best has affirmed the ICR of “a-” and existing issue ratings of DFG. The outlook for each of the above ratings is stable. (Please see below for a detailed list of the issue ratings.)
The ratings of DFG’s life/health subsidiaries reflect its favorable operating results and strong level of risk-adjusted capitalization, despite increasing risk within its general account investment portfolio. Reliance Standard continues to report favorable operating results driven by steady loss ratios and good persistency in its core group insurance lines of business. Earnings also have been bolstered by a substantial increase in investment income. The increase in investment income is attributable to a substantial increase in invested assets due to strong growth in its asset accumulation business. The ratings also consider Reliance Standard’s improved risk management capabilities, a reasonable level of financial leverage and strong interest coverage ratios at its intermediate holding company, DFG, and the strength and support of its ultimate parent, Tokio Marine.
Partially offsetting these positive rating factors is the considerable increase in below investment grade bonds in Reliance Standard’s general account investment portfolio, which currently represents more than 100% of capital and surplus. A.M. Best notes that the company’s exposure to commercial mortgage loans, which A.M. Best considers to be less-liquid investments, also have increased noticeably over the past year and currently represent approximately 15% of the general account investment portfolio, and 150% of capital and surplus. Additionally, operating leverage has increased considerably in recent periods, to nearly 30% as of second-quarter 2016, primarily due to an increase in notes issued from its funding agreement-backed security program. However, Reliance Standard’s operating leverage remains within A.M. Best’s guidelines and the company has been effectively managing this exposure with its asset-liability management program.
While Reliance Standard has experienced fluctuating levels of sales in its core group and disability insurance business over the past several years, due to economic challenges and the competitive market environment, the company’s recent entrance into the stop-loss insurance line of business has helped to increased sales production over the most recent period, and has added to the company’s diverse portfolio of employee benefits and annuity products. While the company’s overall liability profile has shifted more toward interest-sensitive annuities, which A.M. Best views as a less creditworthy product line, A.M. Best notes that Reliance Standard has been successful in maintaining healthy interest spreads in the challenging low rate environment.
The ratings of Safety National reflect its strong risk-adjusted capitalization, historically profitable overall operating performance and specialized market profile as an industry leader in excess workers’ compensation. The ratings also take into account Safety National’s strategic role in the organization and the commitment from DFG and Tokio Marine to support ongoing operations.
Partially offsetting these positive rating factors is ongoing adverse reserve development, the investment portfolio’s exposure to investment market variability and premium growth over the most recent five-year period. Despite these concerns, the ratings recognize the group’s consistently strong earnings and expectation of continued generation of retained earnings.
The following issue ratings have been affirmed:
Delphi Financial Group, Inc.—
— “a-” on $250 million 7.875% senior unsecured notes, due 2020
— “bbb” on $175 million fixed/floating rate junior subordinated debentures, due 2037
Reliance Standard Life Global Funding II— “aa-” program rating
— “aa-” on all outstanding notes issued under the program