AM Best Information Services

DECEMBER 04, 2014 02:36 PM (EST)

A.M. Best Affirms Ratings of United Services Automobile Association, Its Subsidiaries and USAA Capital Corporation

Neil Das Gupta
Senior Financial Analyst – P/C
(908) 439-2200, ext. 5206

Joesph Burtone
Assistant Vice President – P/C
(908) 439-2200, ext. 5125

Tom Zitelli
Senior Financial Analyst – L/H
(908) 439-2200, ext. 5412

Thomas Rosendale
Assistant Vice President – L/H
(908) 439-2200, ext. 5201

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - DECEMBER 04, 2014 02:36 PM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A++ (Superior) and the issuer credit ratings (ICR) of "aaa" of United Services Automobile Association (USAA) 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 debt rating of AMB-1+ on the commercial paper program of USAA Capital Corporation. The outlook for all ratings is stable, with the exception of the commercial paper, which does not have an outlook. Both companies above are domiciled in San Antonio, TX. (See below for a detailed listing of the companies and ratings.)

The rating 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 (ERM) 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 seventh-largest private passenger auto and fifth-largest homeowners' policy provider, based on A.M. Best 2013 industry direct premium data.

Partially offsetting these positive rating factors is USAA's exposure to frequent and severe weather-related events, with nearly 40% of its premium volume derived from catastrophe-prone states. This exposure was evidenced over the past five years, as catastrophe activity resulted in considerable losses.

However, despite the frequent and severe catastrophe losses during the past five-year period, USAA's property/casualty operating results continue to be favorable. Although 2014 has seen increased weather-related activity as compared with 2013, USAA has been able to generate exceptionally strong operating earnings and excellent surplus growth. This was evidenced based on its performance through Sept. 30 of the current year, when it produced nearly $2.0 billion in surplus growth, a nearly 9% increase from its year-end 2013 level, as well as its solid underwriting results and operating earnings, which partly benefited from the lack of major hurricanes that made landfall in the United States. However, as part of its ERM, USAA has developed strong catastrophe management and a sound reinsurance program designed to preserve the capital and financial security of its membership. As evidence of this strategy, even in years of significant catastrophe activity, such as 2011 (extensive tornado hail losses and Hurricane Irene) and 2012 (Superstorm Sandy), USAA was able to grow surplus in the range of 6-8% while posting only moderate underwriting losses (inclusive of dividends).

In addition, USAA maintains a relatively conservative investment strategy, which has enabled it to experience favorable investment returns even during times of significant market turmoil and record low interest rates. These positive attributes have allowed USAA to retain its superior ratings. Still, factors that could result in downward rating movement include significant deterioration in USAA's underwriting and operating performance,

a sudden large or catastrophic loss event that materially hinders its risk-adjusted capitalization, a material deviation from its submitted financial projections and any event that causes significant damage to its brand identity and reputation in the marketplace.

The ratings of USAA Life Insurance Company and its subsidiary, USAA Life Insurance Company of New York, together referred to as USAA Life, reflect its superior stand-alone risk-adjusted capitalization, favorable operating results and a diversified product profile, while supporting its parent's strategy of facilitating the financial security of its members through a full range of financial products and services. The ratings also reflect the financial strength of USAA, as well as the considerable benefits associated with the depth of USAA's relationship with its military affinity group. USAA Life serves as the life insurance arm of USAA and benefits from parental resources, including advanced technology to support its life, annuity and health operations. Rating considerations also include strong liquidity coverage ratios along with well-integrated enterprise risk management practices to monitor and mitigate stress events throughout the organization.

Partially offsetting rating factors include the challenges associated with balancing the company's earnings/reserves mix of ordinary life and annuities, maintaining targeted spreads on its annuity business in the ongoing low interest rate environment and its exposure, albeit reduced, to commercial mortgage-backed securities relative to its capital position and invested assets.

Factors that could lead to negative rating actions for USAA Life include a sizeable increase in annuity reserves as a percentage of total reserves, a material decline in operating performance or risk-adjusted capitalization levels or a deterioration in A.M. Best's view of the strategic importance of USAA Life to the organization.

The FSR 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 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. Best's Credit Rating Methodology can be found at

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best's ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

  • Gauging the Basis Risk of Catastrophe Bonds

  • Analyzing Insurance Holding Company Liquidity

  • Equity Credit for Hybrid Securities

  • Insurance Holding Company and Debt Ratings

  • A.M. Best's Liquidity Model for U.S. Life Insurers

This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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