A.M. Best Affirms Ratings of Generali USA Life Reassurance Company [Health & Beauty Close – Up]

A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of "a-" of Generali USA Life Reassurance Company (Generali USA) (Kansas City, MO).

The outlook for both ratings is stable.

The rating affirmations and stable outlook of Generali USA recognize its excellent risk-adjusted capitalization, favorable premium and earnings trends primarily derived from its core mortality-based life insurance business and its well managed and conservative investment portfolio with a modest exposure to foreign securities relative to capital and surplus. Generali USA also receives significant retrocession and letter of credit support from its parent, Assicurazioni Generali S.p.A. (Generali) (Italy), on a portion of its business to materially alleviate redundant reserve strains. Generali USA is in negotiations to renew a portion of such letter of credit support, and A.M. Best will continue its discussions with the company on the progress.

The above rating actions follow A.M. Best Europe - Rating Services Limited's rating actions to remove from under review with negative implications and affirm the FSR of A (Excellent) and ICRs of "a" of Generali and its main subsidiaries. The assigned outlook is negative.

The rating actions on Generali are driven by its sizeable exposures to peripheral eurozone debt as well as eurozone financial institutions. This is offset by Generali's strong insurance fundamentals, demonstrating robust earnings after tax of EUR 1.15 billion in 2011, supported by a strong franchise in key European markets. The rating actions also reflect the outcome of stress tests A.M. Best has performed on Generali and other European (re)insurers. The result of these stress tests suggested that these companies are still within the bounds of their respective ratings; however, the overall negative outlook on the sector, and in particular Italy, reflects the continued volatility of the economic and political situation within the eurozone. (For additional information refer to the press release titled, "A.M. Best Removes From Under Review and Affirms Ratings of Generali and Its Main Subsidiaries; Assigns Negative Outlook.")

Upward rating movement for Generali USA may occur if the outlook for the eurozone economies improves and parental ratings are upgraded. Conversely, downward rating pressure may occur if there were further downgrades to Generali's ratings or a significant weakening in Generali USA's financial trends.

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: "Understanding BCAR for Life/Health Insurers"; "Risk Management and the Rating Process for Insurance Companies"; and "A.M. Best's Liquidity Model for U.S. Life Insurers." Best's Credit Rating Methodology can be found at ambest.com/ratings/ methodology.

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