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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 12, 2003 12:00 AM (EST)
A.M. Best Co. has assigned a rating of "a" to Nationwide Financial Services, Inc.'s (NFS) [NYSE: NFS] (Columbus, OH) $200 million 5.625% senior notes due 2015. The rating outlook is negative. These securities are a draw-down from NFS' existing $1.5 billion shelf registration, which A.M. Best rated in January 2003. NFS' existing debt ratings and its subsidiaries' financial strength ratings, which were affirmed on October 18, 2002, are unaffected.
A.M. Best expects proceeds from the offering to be downstreamed as a capital infusion into Nationwide Life Insurance Company, NFS' primary operating subsidiary. Following the debt issuance, NFS' debt to capital ratio (including preferred securities) will be approximately 24%, consistent with the mid-20% range that A.M. Best expects to be maintained over the near to medium term. Although fixed charge coverage declined sharply in 2002, largely reflecting the impact on earnings of a $225 million after-tax writedown of deferred acquisition costs (DAC), A.M. Best anticipates coverage going forward will gravitate towards the 6 times-7 times range. While this level of coverage is down slightly from A.M. Best's prior expectations of coverage in the 7 times-9 times range, it still remains sound.
The ratings continue to recognize NFS' favorable business profile, which is underpinned by balanced revenue streams, strong and diversified distribution, sound earnings capabilities and high overall investment quality. NFS' sales and earnings also should benefit from the ongoing integration of Nationwide Life Insurance Co. of America (formerly Provident Mutual), which adds critical mass to NFS' operations, significant career and PPGA distribution and variable life product expertise. In addition, it reflects the franchise value associated with being a 63%-owned subsidiary of Nationwide Mutual, a major U.S. insurance organization.
Offsetting these strengths is A.M. Best's view that the insurance subsidiaries have weakened their risk-based capital positions as a result of a combination of recent years' robust growth and more active capital management practices. A.M. Best now views these companies as more aggressively capitalized than similarly-rated peers. Additionally, NFS, like many U.S. life insurers, faces a highly competitive market in several of its core products and is dealing with operational and investment challenges arising from the prolonged downturn in equity markets, low interest rate environment and weakness in the U.S. economy.
A debt rating of "a" has been assigned with a negative outlook to the following:
Nationwide Financial Services, Inc.-
- $200 million 5.625% senior notes, due 2015
For a list of A.M. Best's current debt ratings, please visit debt.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.