A.M. Best Affirms Credit Ratings of Delphi Financial Group, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the life/health subsidiaries, Reliance Standard Life Insurance Company (Schaumburg, IL) and First Reliance Standard Life Insurance Company (New York, NY) (together referred to as Reliance Standard), as well as the property/casualty subsidiaries, Safety National Casualty Corporation, Safety Specialty Insurance Company (both domiciled in St. Louis, MO) and Safety First Insurance Company (Chicago, IL) (together referred to as Safety National) of Delphi Financial Group, Inc. (DFG) (Wilmington, DE). DFG is a direct subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc. (Tokio Marine), Japan’s largest non-life insurance organization.

Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” and existing Long-Term Issue Credit Ratings (Long-Term IR) of DFG. The outlook for each of the above Credit Ratings (ratings) is stable. (Please see below for a detailed list of the Long-Term IRs.)

The ratings of Reliance Standard reflect its strong level of risk-adjusted capitalization and favorable operating results, despite some spread compression within its interest sensitive annuity business and increased morbidity in its group long-term disability and stop loss insurance segments. Reliance Standard’s favorable operating results have been driven by generally steady loss ratios and good persistency in its core group insurance lines of business. Earnings also have been bolstered by a significant rise in investment income, which is attributable to a substantial increase in invested assets due to strong growth in its asset accumulation business. The ratings also consider Reliance Standard’s improved risk management capabilities, a reasonable level of financial leverage and strong interest coverage ratios at its intermediate holding company, DFG, and the strength and support of its ultimate parent, Tokio Marine.

Partially offsetting these positive rating factors is the general increase in higher risk and less liquid assets within its general account investment portfolio, including commercial mortgage loans, which currently represents approximately 200% of capital and surplus. While A.M. Best notes that the company’s exposure to below investment grade bonds have declined over the most recent period to approximately two-thirds of capital and surplus and 9% of invested assets, it remains above industry averages. Operating leverage has also increased considerably in recent periods, to nearly 30% of statutory reserves as of second-quarter 2017, primarily due to an increase in notes issued from its funding agreement-backed security program. However, Reliance Standard’s operating leverage on a consolidated GAAP basis is noticeably less at approximately 22%. Operating leverage for Reliance Standard remains within A.M. Best’s guidelines and the company has been effectively managing this exposure with its asset-liability management program. While the company’s overall liability profile has shifted more toward interest-sensitive annuities, which A.M. Best views as a less creditworthy product line, interest rate spreads remain favorable despite some spread compression due to the low interest rate environment. A.M. Best expects Reliance Standard’s earnings to remain favorable over the near to medium-term, but may be pressured if interest rates remain at current levels.

The ratings of Safety National reflect its strong operating performance, established position as the leading provider in the excess workers’ compensation market and solid risk-adjusted capitalization. The ratings also take into account Safety National’s strategic role in the organization and the commitment from DFG and Tokio Marine to support ongoing operations.

Partially offsetting these positive rating factors is drag on overall operating performance from adverse underwriting results and the group’s somewhat constrained business profile with a significant majority of its premiums from workers’ compensation. Despite these concerns, the ratings recognize Safety National’s solid overall profitability and an expectation of continued generation of retained earnings.

The following Long-Term IRs have been affirmed:

Delphi Financial Group, Inc.—

-- “a-” on $250 million 7.875% senior unsecured notes, due 2020

-- “bbb” on $175 million fixed/floating rate junior subordinated debentures, due 2037

Reliance Standard Life Global Funding II— “aa-” program rating

-- “aa-” on all outstanding notes issued under the program

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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

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A.M. Best

Michael Adams

Senior Financial Analyst—L/H

+1 908 439 2200, ext. 5133

michael.adams@ambest.com

or

Robert Raber

Senior Financial Analyst—P/C

+1 908 439 2200, ext. 5696

robert.raber@ambest.com

or

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

or

Jim Peavy

Director, Public Relations

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: A.M. Best