S&P Lowers Ratings on American National’s Operating Companies

October 25, 2010

Standard & Poor’s Ratings Services has lowered its counterparty credit and financial strength ratings on the core operating companies of the American National Insurance Co. group (ANICO) to ‘A+’ from ‘AA-‘.

The core operating companies are American National Insurance Co., American National Insurance Co. of Texas, American National Property & Casualty Co., and American National General Insurance Co. At the same time, we lowered our counterparty credit and financial strength ratings on American National Life Insurance Co. of New York to ‘A’ from ‘A+’. The outlook on all of these companies is negative.

S&P also revised its outlook on Garden State Life Insurance Co. to stable from negative, and affirmed the ‘A-‘ ratings on the company. It also affirmed the ‘A’ counterparty credit and financial strength ratings on Standard Life & Accident Insurance Co. The outlook on Standard Life remains negative.

“The downgrade primarily reflects the operating performance of ANICO’s P/C business, which has been volatile and has weakened as a result of sustained operating losses over the past few years, mainly because of significant catastrophe losses,” explained credit analyst David Zuber.

S&P noted that in “2008 and 2009, the group’s P/C businesses recorded pretax operating losses of $76.3 million and $25.6 million, respectively, and $17.1 million in the first half of 2010. These losses have translated into combined ratios of 113.9 percent in 2008, 109.6 percent in 2009, and 111.9 percent in the first six months of 2010.”

Zuber added: “Performance in the P/C segment is somewhat cyclical–historically, losses have been higher in the first half of the year–and we believe the results could improve during the third quarter of 2010, primarily because of lower catastrophe losses. But, we do not believe that ANICO has established a trend of improvement, and we expect the combined ratio will remain in excess of 100 percent for the remainder of 2010.”

S&P also pointed out that “other operating segments continue to perform below historical levels.

To address these issues, the company has taken corrective actions, including changing its pricing and underwriting discipline, and it’s considering further expanding its reinsurance coverage in its P/C operations.

“Also, the company has worked with outside consultants to establish a more formal enterprise risk management (ERM) framework. We believe that the group could greatly benefit from this initiative, although we recognize that establishing the related limits, guidelines and controls, and coordinating their dissemination across the group, is a long-term process.

Zuber also explained that the “negative outlook primarily reflects losses in the P/C business. However, other business lines have been operating below historical levels, which have negatively affected the group’s financial performance and organic capital growth.”

S&P added that there are “concerns about the group’s long-term earnings diversity because of regulatory changes in the health care segment and the continuing decline of the home service business.”

Source: Standard & Poor’s

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