Fitch Downgrades Nationwide Mutual Following Life Privatization
Business Editors
CHICAGO--(BUSINESS WIRE)--January 2, 2009--Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings on Nationwide Mutual Insurance Company (NMIC) and its related intercompany pool members (collectively, Nationwide Mutual), as well as Nationwide Life Insurance Company (NWL) and Nationwide Life Insurance Company of America (NWLA), to 'A+' from 'AA-'. In addition, Fitch has downgraded the ratings on NMIC's outstanding surplus notes to 'A-' from 'A', and the rating on the senior unsecured debt of Nationwide Financial Services, Inc. (NFS) to 'BBB+' from 'A-'. A full list of rating actions can be found below. The Rating Outlook is Negative.
The rating action follows the completion of NMIC's privatization of its life insurance operations, which are held within NFS. Under the terms of the transaction, NMIC acquired the 34% of NFS that it did not previously own for a purchase price of approximately $2.5 billion. The transaction was financed through internal funding provided by NMIC.
The rating downgrade and Outlook revision reflect Fitch's view that transaction funding has reduced the capital of NMIC below thresholds commensurate with prior rating expectations, as well as concern regarding weaker operating performance over the past year, significant realized investment losses in 2008, and the potential for further investment losses into 2009.
While the transaction does not directly affect the absolute capital level of NFS, Fitch views the overall capital position of the broader Nationwide organization as moderately weakened by the distribution of the purchase price to former external shareholders, and flexibility as diminished by limited access to public equity markets. As NFS is considered a very important strategic operation for Nationwide Mutual, the downgrade of NMIC has an adverse effect on the ratings of NWL and NWLA.
Further, variable annuity writers such as NWL and NWLA are under considerable pressure as the decline in equity market values requires additional general account reserves to cover guarantees attached to the variable annuities the companies have sold. While Fitch believes that NWL and NWLA have strong hedging programs to reduce the exposure to these policy guarantees, the companies will continue to face a challenging operating environment in 2009.
Fitch's ratings on NMIC and its operating subsidiaries reflect its solid competitive position in personal lines insurance, diversification across both property casualty and life insurance products, and a relatively conservative investment strategy. Partially offsetting these strengths is its lower capital position as a result of the privatization of NFS, potential exposure to investment losses driven by instability in the capital market and general economic conditions, as well as the company's asbestos-related exposures.
Fitch's ratings on NFS and its operating subsidiaries reflect a history of solid, diverse earnings stream, diversity of distribution channels, and reasonably conservative capital structure. These positives are partially offset by negative flows in its annuity operation, the exposure of its investment portfolio to recent capital market turmoil, and the extent to which the company's operating earnings are leveraged to equity market performance.
The revision of the Rating Outlook to Negative reflects Fitch's view that NMIC and NFS, as do many sector participants, face additional risk of investment losses and earnings deterioration due to expected economic conditions in 2009. Fitch will work with Nationwide's management team in the near term to further evaluate potential loss exposure driving the Rating Outlook.
Fitch has downgraded the following and revised the Outlook to Negative:
Nationwide Mutual Insurance Co.
--Issuer Default Rating (IDR) to 'A' from 'A+'
--8.25% surplus notes due Dec. 1, 2031 to 'A-' from 'A';
--7.875% surplus notes due April 1, 2033 to 'A-' from 'A';
--6.60% surplus notes due April 15, 2034 to 'A-' from 'A'.
Nationwide Mutual Insurance Co.
Nationwide Mutual Fire Insurance Co.
Scottsdale Insurance Co.
Farmland Mutual Insurance Co.
Colonial County Mutual Insurance Company
Nationwide Assurance Company
Nationwide General Insurance Company
Nationwide Lloyds
Nationwide Property & Casualty Insurance Company
Titan Indemnity Company
Titan Insurance Company</p>
Victoria Automobile Insurance Company
Victoria Fire & Casualty Insurance Company
Victoria Select Insurance Company
Victoria Specialty insurance Company
Scottsdale Indemnity Company
Scottsdale Surplus Lines Insurance Company
Western heritage Insurance Company
Allied Property & Casualty Insurance Company
AMCO Insurance Company
Depositors Insurance Company
Nationwide Affinity Company
--IFS to 'A+' from 'AA-'.
Nationwide Financial Services Inc.
--IDR to 'A-' from 'A';
--Senior notes $300 million; 6.25%; due Nov. 15, 2011 to 'BBB+' from 'A-';
--Senior notes $300 million; 5.90%; due July 1, 2012 to 'BBB+' from 'A-';
--Senior notes $200 million; 5.625%; due Feb. 13, 2015 to 'BBB+' from 'A-';
--Senior notes $200 million; 5.10%; due Oct. 1, 2015 to 'BBB+' from 'A-';
--Trust preferred $100 million; 7.899%; due March 1, 2037 to 'BBB' from 'BBB+'.
Nationwide Life Insurance Co.
--IFS to 'A+' from 'AA-'.
Nationwide Life Insurance Co. of America
--IFS to 'A+' from 'AA-'.
Nationwide Life Global Funding I
--Program Rating to 'A+' from 'AA-'.
In addition Fitch has affirmed the following:
Nationwide Life Insurance Co.
--Short-term IDR at 'F1'
--Short-term IFS at 'F1'
--Commercial paper at 'F1'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


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