S&P downgrades 10 insurers

Standard and Poor’s yesterday announced ratings downgrades for 10 major life insurers, including Genworth Financial Inc., Lincoln National Corp. and MetLife Inc. The ratings actions follow the New York-based agency’s Feb. 18 announcement that it would adjust its stress analysis criteria, which it uses to examine carriers’ bond holdings, commercial mortgages and securities backed by those mortgages, when considering carriers’ capital adequacy. Those assets, in aggregate, make up about 80% of life carriers’ invested assets and are now under a renewed focus as the economic climate continues to worsen. Recent reviews of companies have drawn analysts’ attention to operating performance, liquidity and financial flexibility, Greg Gaskel, a credit analyst at S&P, said during a conference call to discuss the downgrades. Carriers that were cut include Carmel, Ind.-based Conseco Inc., which has had its financial-strength rating cut to BB-, from BB+; Genworth of Richmond, Va., which had its financial-strength rating chopped to A, from AA-; The Hartford (Conn.) Financial Services Group Inc., which had its financial-strength rating cut to A+, from AA-; and Radnor, Pa.-based Lincoln, which saw its financial-strength rating cut to AA-, from AA. New York-based MetLife had its financial strength downgraded to AA-, from AA; Midland National Life Insurance Co. of Sioux Falls, S.D., went from AA-, to A+; Pacific LifeCorp. of Newport Beach, Calif., was cut to AA-, from AA; and Protective Life Corp. of Birmingham, Ala., was lowered to AA-, from AA. Finally, Prudential Financial Inc. of Newark, N.J., was lowered to AA-, from AA, as was Security Mutual Life Insurance Co. of New York (A+ to A-). “The rating rationale reflects different primary factors,” said S&P analyst Kevin Ahern. “For [MetLife], the main factor reflected the effect of the asset stress analysis on capital adequacy, which fell below expectations for AA ratings and earnings volatility.” Prudential’s slide was linked to a large exposure to variable annuities and more earnings volatility. Still, Prudential was given a “stable” outlook because S&P expects the company to be able to absorb future stresses in its capital, while MetLife — though able to originate organic capital — may have depressed statutory earnings over the next two years, which will hinder its ability to recover to AA capital levels in a one- to two-year time frame, Mr. Ahern added.