Ratings of Ameritas Mutual Holding Company

 Ratings of Ameritas Mutual Holding Company : A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Ameritas Life Insurance Corp. (Ameritas Life) (Lincoln, NE), Ameritas Life Insurance Corp. of New York (Ameritas, NY), Acacia Life Insurance Company (Acacia Life) (headquartered in Bethesda, MD) and The Union Central Life Insurance Company (Union Central) (headquartered in Cincinnati, OH). These insurance entities comprise the life/health operations of Ameritas Mutual Holding Company (Ameritas) (Lincoln, NE). Concurrently, A.M. Best has affirmed the debt rating of “a-” on $50 million 8.20% surplus notes due 2026 of Union Central. The outlook for all ratings is stable.

The rating affirmations primarily reflect the group’s strong risk-adjusted capitalization, diversified operating platform, high quality balance sheet and favorable business profile. The ratings also reflect Ameritas Life’s well-established market position in group dental insurance. As a mutual holding company, Ameritas has good financial flexibility with the ability to access the capital markets through debt offerings. The organization’s current financial leverage is modest, with a reasonable level of intangibles facilitating a high-quality capital base. Additionally, A.M. Best notes that Ameritas’ below investment grade bonds currently represent less than 4% of the company’s fixed income portfolio, and its non-agency residential mortgage-backed securities (RMBS) have declined in recent periods.

A.M. Best believes that Ameritas Life’s favorable business profile should strengthen further under its unified branding strategy and improved economies of scale. Its broad portfolio of individual life, individual annuity, disability income, retirement plans and dental and vision products provide a steady source of diversified earnings. More recently, Ameritas’ earnings have been impacted by non-insurance related lines of business; however, it has historically experienced favorable operating results within its core insurance and annuity lines. Although A.M. Best expects these favorable results to continue in the near to medium term, Ameritas may be challenged to increase sales due to the sluggish U.S. economy, prolonged low interest rates and the highly competitive landscape within many of the group’s core lines of business.

Partially offsetting these positive rating factors are the modest decline in Ameritas’ operating income, primarily driven by the results of its Calvert Investments, Inc. (Calvert) subsidiary, which in 2012 experienced a noticeable drop in assets under management. Operating results also have been negatively impacted by a lack of scale, lower-than-expected persistency and the impact of the low interest rate environment within the group retirement plans segment. While earnings increased in the company’s individual life and annuity businesses, A.M. Best notes that a significant amount of Ameritas’ interest-sensitive reserves remain at or near the guaranteed minimum interest rate, which has caused some spread compression. However, this has been offset by an increase in earnings from its variable annuity product line as a result of increased sales and higher fees associated with an increase in fund balances. Moreover, while A.M. Best views favorably the pending sale of Acacia Federal Savings Bank due to the regulatory burden associated with being a bank holding company, the pending sale has resulted in a contingent net loss of approximately $35 million. Approximately $300 million of primarily interest-only loans have been excluded from the sale and have been transferred to Ameritas’ general account investment portfolio. A.M. Best will closely monitor the performance of these transferred loans.

Factors that could result in positive rating actions for Ameritas in the near to medium term include continued favorable earnings trends, improved operating performance at Calvert and continued overall top line growth.

Factors that may result in negative rating actions include deterioration in the group’s operating results, material investment losses or a lack of sustained revenue growth within its core lines of business.

A.M. Best also has withdrawn the FSR of A- (Excellent) and ICR of “a-” of Brokers National Life Assurance Company (BNLAC) (headquartered in Austin, TX). Following the reinsurance of its core dental and vision business to Ameritas Life, BNLAC will have a negligible amount of reserves and is expected to be sold (essentially as a shell) to a third party in the near term.

Hanover Insurance stock rating by A.M. Best Co

Hanover Insurance stock rating by A.M. Best Co : A.M. Best Co. has assigned a debt rating of "bb+" to the 40-year $175 million 6.35% fixed rate junior subordinated debentures recently issued by The Hanover Insurance Group Inc (Hanover, Inc.) (Worcester, MA) [NYSE: THG]. Additionally, A.M. Best has assigned indicative ratings of "bbb" on senior unsecured debt, "bb+" on junior subordinated debt and "bb+" on the preferred stock of the recently filed shelf registration of Hanover, Inc. The outlook assigned to all ratings is stable. All existing ratings of Hanover, Inc. and its subsidiaries are unchanged.

The rating assignments recognize Hanover P&C Group's (Hanover) favorable risk-adjusted capitalization and generally positive operating results despite significant catastrophic weather-related activity in the United States in recent years. The ratings also recognize Hanover's proactive and comprehensive risk management, its significant U.S. market presence in commercial and personal lines, as well as solid earnings in its international segment generated by its United Kingdom subsidiary, Chaucer Holdings, PLC.

As of December 31, 2012, Hanover, Inc.'s unadjusted debt-to-capital and debt-to-tangible capital ratios were 24.7% and 26.1%, respectively. The additional borrowings of $175 million will result in a slight increase of the unadjusted debt-to-capital and debt-to-tangible capital ratios to 27.1% and 28.5%, respectively, which remain well within the financial leverage guidelines for its assigned ratings.

While Hanover Inc.'s fixed charge coverage declined in 2012 from historical levels, largely due to a significant increase in catastrophe and weather-related losses (primarily from Hurricane Sandy), historical interest coverage has been supportive of its ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Insurance Holding Company and Debt Ratings"; "Equity Credit for Hybrid Securities"; and "Risk Management and the Rating Process for Insurance Companies." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

RBS Direct Line Insurance stock down today

RBS Direct Line Insurance stock down today : The shares of Royal Bank of Scotland  (LSE: RBS  ) (NYSE: RBS  )  slipped 1 pence to 305 pence during early London trade this morning after the bank announced late last night that it would sell more shares in Direct Line Insurance  (LSE: DLG  ) .

RBS confirmed it would offer 229.4 million shares -- equivalent to 15.3% of Direct Line's share capital -- to institutions via an 'accelerated bookbuild' process.


Direct Line's shares fell 4 pence, or 2%, to 206 pence during early trading, indicating RBS could raise about 470 million pounds from the disposal. The sale would take RBS's remaining stake in Direct Line to just below 50%.

RBS said the process could involve selling a further 22.9 million shares depending on sufficient institutional demand.

RBS is essentially a forced seller of Direct Line, having agreed to dispose of the insurer as part of the commitment made to the European Commission following the bank's taxpayer-funded bailout.

RBS sold 35% of Direct Line at 175 pence a share last year via a flotation and must sell the remainder before the end of 2014.

Within its annual results last month, Direct Line declared a maiden 8 pence per share dividend and implied the payout could have been 12 pence per share had the business operated separately from RBS throughout all of 2012.

Direct Line's results also showed underlying net earned premiums falling 5% to 3.7 billion pounds and underlying operating profits advancing 9% to 461 million pounds.

Based on those results, Direct Line is valued at less than 10 times profits and offers a possible 5.8% dividend income.

Of course, whether that 5.8% income, RBS's decision to sell more shares -- as well as the general outlook for the insurance industry -- actually combine to make Direct Line a buy remains your decision.

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