A.M. Best Affirms Ratings of USAA, Its Subsidiaries and USAA Capital Corporation

Copyright:	Copyright Business Wire 2010
Source:	Business Wire, Inc.
Wordcount:	831

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength ratings (FSR) of A++ (Superior) and issuer credit ratings (ICR) of “aaa” of United Services Automobile Association (USAA) (San Antonio, TX) and its property/casualty and life/health subsidiaries. Concurrently, A.M. Best has affirmed the debt rating of “aaa” on the medium-term note program and the AMB-1+ on the commercial paper program of USAA Capital Corporation (San Antonio, TX). The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The affirmations reflect USAA’s superior capitalization and strong operating results through focused business and financial strategies. USAA maintains diversified sources of earnings, capital accumulation and strong enterprise risk management with a full range of financial products and services to its membership of military and ex-military personnel and their dependents. USAA’s low cost structure, high customer retention, effective use of technology and exceptional customer service capabilities has enabled it to build a sustainable competitive advantage in the personal lines sector. As a result of these strengths, USAA has built a sizeable market position, especially in the property/casualty segment, as the nation’s eighth-largest private passenger auto and sixth-largest homeowners’ policy provider.

Modestly offsetting these positive rating factors is USAA’s exposure to frequent and severe weather-related events, with approximately 40% of its premium volume derived from catastrophe-prone states. This exposure was evident over the past five years, as catastrophe activity—including several hurricanes—resulted in considerable losses. However, despite the frequent and severe catastrophe losses of recent years, USAA continues to produce strong earnings and record solid surplus growth. Operating results in 2010 have been significantly favorable due in part to somewhat milder weather patterns, which produced lower catastrophe-related claims compared to recent years. Furthermore, as part of its enterprise risk management, USAA has strong catastrophe management and a sound reinsurance program designed to preserve the capital and financial security of its membership. In addition, USAA maintains a relatively conservative investment strategy, which has enabled it to enjoy favorable investment returns even during times of significant market turmoil as was witnessed in recent years.

USAA’s superior capitalization, strong operating results and business profile, including available resources at the group level, strongly support the life insurance operations. The ratings of USAA Life Insurance Company and its subsidiary, USAA Life Insurance Company of New York (together referred to as USAA Life), are based on a highly focused and well established presence in the military market. The affirmations also reflect the improved 2010 earnings results post economic crisis, strong liquidity and capitalization measures and integrated enterprise risk management practices throughout the organization.

Partially offsetting these strengths is USAA Life’s challenges associated with increasing the mix of USAA Life’s ordinary life business versus accumulation product sales. In recent years, its annuity growth has significantly exceeded its life insurance products, and reserves were weighted towards annuities. A.M. Best would prefer a more balanced reserve composition, which would provide for further risk diversification. Moreover, given the uncertainty in the current economic and investment climate, USAA Life may be further challenged to achieve spreads on its annuity business at historical levels. In addition, while the company’s commercial mortgage-backed securities are performing to terms, total exposure exceeds the company’s capitalization levels.

USAA is a fully integrated financial services organization with 7.7 million members, $18.0 billion in net worth and nearly $140 billion in owned and managed assets as of June 30, 2010.

The FSRs of A++ (Superior) and ICRs of “aaa” have been affirmed for United Services Automobile Association and its following property/casualty and life/health subsidiaries:

• USAA Casualty Insurance Company
• USAA General Indemnity Company
• USAA Limited
• USAA Texas Lloyd’s Company
• USAA County Mutual Insurance Company
• USAA Life Insurance Company
• USAA Life Insurance Company of New York

The following debt ratings have been affirmed:

USAA Capital Corporation—

--“aaa” on the medium-term note program

--AMB-1+ on the commercial paper program

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “BCAR for Life and Health Insurers”; “Catastrophe Risk Management Incorporated Within Rating Analysis”; “Catastrophe Analysis in A.M. Best Ratings”; “Natural Catastrophe Stress Test Methodology”; “Commercial Paper Methodology”; “Rating Natural Catastrophe Bonds”; “Rating Members of Insurance Groups”; “A.M. Best’s Ratings & the Treatment of Debt”; “Equity Credit for Hybrid Securities”; and “A.M. Best Liquidity Model for U.S. Life Insurers.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2010 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Neil Das Gupta
Senior Financial Analyst
(908) 439-2200, ext. 5206
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
[email protected]
or
Gary A. Davis
Assistant Vice President
(908) 439-2200, ext. 5665
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.