NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed Phoenix Companies, Inc.'s (PNX) 'B' holding
company Issuer Default Rating (IDR) with a Positive Outlook. At the same
time, Fitch has affirmed the 'BB+' Insurer Financial Strength (IFS)
ratings of the group's primary insurance subsidiaries with a Stable
Outlook. A full ratings list follows at the end of this release.
These rating actions reflect continued improvement in PNX's GAAP
interest coverage as well as good investment results, adequate statutory
capitalization and stable financial leverage.
PNX's debt servicing capabilities improved substantially in 2011, and
GAAP coverage continued to strengthen in the first quarter of 2012. GAAP
EBIT coverage was 3.1x and 2.5 times (x) as of March 31, 2012 and Dec.
31, 2011 respectively compared to about 0.6x in 2010. Statutory interest
coverage is 3.6x in 2012 based on maximum dividend capacity of $72
million in 2012 and holding company interest expense of $20 million.
PNX's financial leverage ratio (FLR) remains well within expectations
for the rating level at 31% and 28% as March 31, 2012 and Dec. 31, 2011.
The increase in the first quarter was due to lower equity related to the
new DAC accounting rules. There was no increase in debt. The group's
total financing and commitments ratio remains at about 0.4x.
PNX's surplus notes in relation to total adjusted capital (TAC) was 18%
at year-end and as of March 31, 2012 compared to Fitch's maximum
guideline of 15%. For this reason, the surplus notes are rated one notch
below standard notching.
Fitch views Phoenix's statutory capitalization as adequate. A
significant improvement in 2011 was due in large part to the reinsurance
of one-third of the closed block, which resulted in a 53-point increase
in the risk-based capital (RBC) ratio. The RBC was 363% as of Dec. 31,
2011, in line with expectations. The RBC is estimated at 371% as of
March 31, 2012.
First quarter 2012 statutory earnings improved compared to first quarter
2011 due to a reduction in the policyholder dividend scale and general
improvement in policy profitability. Fitch notes the heightened sales
levels of annuity products over the past five quarters and believes the
company will need to balance top line growth against growing statutory
earnings and capital, which in turn affects the company's ability to pay
Credit-related investment impairments increased modestly in the first
quarter, although the trend has generally been favorable. Derivative
mark-to-market movements were the biggest component of realized gains
and losses in the first quarter. Gross unrealized losses in the fixed
income portfolio declined in the first quarter, and the portfolio was in
a net unrealized gain position of over $600 million as of March 31, 2012.
Fitch's concerns include an underfunded pension liability of $187
million at year-end 2011 and the holding company's need to make annual
contributions to keep it 80% funded. Phoenix contributed $25 million and
$17 million to the pension plan in 2010 and 2011 respectively, and is
expected to contribute $16 million in 2012. There is also a supplemental
plan with $141 million in unfunded obligations as of year-end 2011. The
company would have to fully fund the supplemental plans under any change
The holding company IDR could be upgraded one notch based on the
--GAAP interest coverage of 3x or greater on a sustained basis;
--Financial leverage maintained at or below 25%;
--Statutory coverage of holding company interest expense maintained at
or above 3x;
The surplus note rating could be upgraded one notch to standard notching
if the ratio of surplus notes to TAC declines to 15% or lower;
Other upgrade triggers include:
--GAAP ROE at or above 5%;
--Sustained statutory capital generation resulting in an RBC position at
or above 350%.
--No significant deterioration in the funded status of the pension
The key rating drivers that could result in a downgrade include:
--An RBC position below 200%;
--Investment losses higher than anticipated, particularly within the
--Financial leverage above 30%.
--Significant deterioration in the funded status of the pension liability
PNX is a life and annuity insurance holding company and ultimate parent
of Phoenix Life Insurance Company and PHL Variable Insurance Company. It
is headquartered in Hartford, Connecticut. PNX had $22 billion in GAAP
assets and $948 billion in equity as of March 31, 2012.
Fitch affirms the following rating with a Positive Outlook:
Phoenix Companies, Inc
--IDR at 'B'.
Fitch affirms the following ratings with a Stable Outlook:
Phoenix Life Insurance Company
--IFS at 'BB+';
--IDR at 'BB';
--$174 million Surplus note 7.15% due Dec. 2034 at 'B+'.
PHL Variable Insurance Company
--IFS at 'BB+'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a
service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).
Insurance Rating Methodology
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Fitch RatingsPrimary AnalystCynthia J. Crosson,
+1-212-908-0863DirectorFitch, Inc.One State Street
PlazaNew York, New York 10004orSecondary AnalystJulie
A. Burke, CPA, CFA, +1-312-368-3158Managing DirectororCommittee
ChairpersonDouglas M. Pawlowski, CFA, +1-312-368-2054Senior
DirectororMedia RelationsBrian Bertsch, New York,
Source: Fitch Ratings