CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to Nationwide Financial Service's (NFS) issuance of $600 million of 5.375% senior unsecured notes due 2021.
Fitch expects proceeds from the debt issuance to be used to fund a $300 million maturity in November 2011 and for general corporate purposes.
Fitch affirmed Nationwide's ratings and revised the Outlook on the company's ratings to Stable from Negative on Dec. 15, 2010. This rating action primarily reflected improved underwriting performance and increased capital of the parent property and casualty organization.
As a large, wholly-owned subsidiary of Nationwide Mutual Insurance Company, NFS is considered core to the overall Nationwide organization, and as such, its financial strength and ratings are tied very closely to those of its ultimate parent. Fitch views financial leverage within the organization on a consolidated basis, and considers that of the Nationwide organization to be moderate relative to peers. Consolidated financial leverage, which includes $2.2 billion in surplus notes supporting the property/casualty operations and an estimated $2.3 billion in debt supporting the life insurance operations, was approximately 21% at year-end 2010. Given the pre-funding of the upcoming maturity, the agency views the proposed issuance as having a modest effect on the financial leverage of the overall Nationwide organization.
Although recent global capital market turmoil and difficult economic conditions disrupted the company's earnings trends, NFS has generally delivered good, broad-based earnings performance across its operating segments. The company's primary life insurance subsidiary, Nationwide Life Insurance Company, reported statutory net income of $560 million in 2010, up from $397 million in 2009.
The risk-adjusted capitalization of the life insurance and annuity operations is generally considered by Fitch to be strong relative to its peers. At year-end 2010, the company reported a consolidated risk-based capital (RBC) ratio of 595% of the company action level. Fitch notes that NFS has relatively high exposure to variable annuity products and mortgage related investments as well as a small but growing bank subsidiary.
Key rating drivers for NFS and the Nationwide organization that could lead to an upgrade include:
--Growth in surplus leading to an improved capitalization profile along
with underwriting results consistent with industry averages.
--A
material reduction in overall financial leverage.
--A reduction in
the degree to which NFS' earnings are leveraged to the equity market,
thereby adding further stability to the company's earnings stream and
profitability.
Key rating drivers for NFS and the Nationwide organization that could lead to a downgrade include:
--A prolonged decline in underwriting profitability that is inconsistent
with industry averages or is driven by an effort to grow market share
during soft pricing conditions.
--Substantial adverse reserve
development relative to peers and industry averages. Fitch expects
Nationwide to maintain the current asbestos-related reserve profile
exemplified by a three-year average survival ratio of 12 times, only
modest adverse reserve development and near breakeven results from
Nationwide Indemnity, which houses the asbestos exposure.
--Significant
deterioration in capital strength as measured by Fitch's capital model,
NAIC risk-based capital and traditional operating leverage.
--Significant
increases in financial leverage of NFS and/or the broader Nationwide
Mutual enterprise.
Fitch has assigned the following rating:
Nationwide Financial Services, Inc.
--$600 million 5.375% senior
notes 'BBB'.
For additional credit commentary and analysis on the financial institutions sector, see Fitch's recent Global Financial Institutions Snapshot, available at www.fitchratings.com. The report compiles Fitch's views, analysis and tools for the sector in an easily navigable format.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', dated Aug. 16, 2010;
-- 'Life
Insurance Rating Methodology', dated March 24, 2010;
--'Fitch's
Approach to Rating Insurance Groups', dated Dec. 14, 2010.
Applicable Criteria and Related Research:
Global Financial
Institutions Snapshot
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=609947
Fitch's
Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Life
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285
Insurance
Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
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