AM Best Information Services

OCTOBER 02, 2017 04:47 PM (EDT)

A.M. Best Revises Outlooks to Negative for Nationwide Mutual Insurance Company and Its Property/Casualty Subsidiaries

 Raymond Thomson, CPCU, ARe, ARM
Associate Director – P/C
+1 908 439 2200, ext. 5621

Keith Behrmann
Financial Analyst – L/H
+1 908 439 2200, ext. 5733
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - OCTOBER 02, 2017 04:47 PM (EDT)
A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the four participating property/casualty pool members and 33 reinsured affiliates of Nationwide Group (Nationwide).

Concurrently, A.M. Best has revised the outlooks to negative from stable and affirmed the Long-Term Issue Credit Ratings (Long-Term IR) of “a” of five surplus notes totaling $2.2 billion issued by Nationwide Mutual Insurance Company (Nationwide Mutual). Additionally, A.M. Best has affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Nationwide Indemnity Company (NIC), the group’s run-off entity for asbestos and environmental claims. The outlook of these Credit Ratings (ratings) is stable.

A.M. Best also has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa-” of the two key life/health subsidiaries of Nationwide Financial Services Inc. (NFS): Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company (collectively known as Nationwide Life Group). Additionally, A.M. Best has affirmed the Long-Term ICR of “a-” of NFS and all of its Long- and Short-Term IRs. The outlook of these ratings is stable. NFS is indirectly owned by Nationwide Mutual and Nationwide Mutual Fire Insurance Company.

Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Harleysville Life Insurance Company (HLIC) (Harleysville, PA), and the FSR of A (Excellent) and Long-Term ICR of “a” of Jefferson National Life Insurance Company (JNL) (Dallas, TX). The outlook of these ratings is stable, with all new business written at Nationwide Life Group.

All companies are headquartered in Columbus, OH unless otherwise specified. (See link below for a detailed listing of all the companies and ratings.)

Nationwide’s ratings reflect its strong level of risk-adjusted capitalization, which continues to be supportive of its ratings. Nationwide also features a superior business profile with diversified product offerings across personal and commercial lines, multiple integrated distribution channels and a wide geographic spread of risks with a market leadership position and presence across the United States. The negative outlooks reflect the varying and unprofitable underwriting performance in the group’s core property/casualty lines of business, impacted by weather-related events, as well as some deterioration in profitability in the automotive lines due to increases in frequency and severity trends. Nationwide continues to implement strategies to improve its performance, while continuing to emphasize its multi-channel distribution sources and branding initiatives. Solid investment income is a significant component in overall earnings.

While A.M. Best notes these efforts, Nationwide’s management continues to face challenges in the near term to generate the positive underwriting results necessary to further strengthen the group’s capital position. In addition, Nationwide faces inherent exposure to natural disasters due to its expansive market presence throughout the country. This exposure is evident with localized severe weather and net catastrophe losses having a noted impact on the group’s overall results. In addition, A.M. Best’s expectation is that losses from Hurricanes Harvey and Irma will be within Nationwide’s risk tolerances, as well as within A.M. Best expectations, as A.M. Best looks across the losses relative to the broader peer group. A.M. Best will continue to monitor the developments associated with these events and their impact on Nationwide. Should ultimate losses materially deviate from expectations, A.M. Best will update the market with regards to its rating opinion on Nationwide. However, Nationwide in recent years has maintained an extensive catastrophe risk reduction program in coastal areas such as Florida and Texas, and utilizes significant catastrophe reinsurance coverage.

Regarding future rating movement for Nationwide, if trends in underwriting performance continue to be unprofitable in the near term, leading to notable decline in risk-adjusted capitalization, further downward rating pressure will be considered. Conversely, an established improving trend in underwriting profitability could eventually lead to a stable outlook.

The ratings of NIC reflect its role as a receptacle for asbestos and environmental reserves, as well as the support it receives from its parent, Nationwide Mutual. Regarding future rating movement, downward rating pressure could result if significant adverse development on Indemnity losses negatively impacts risk-adjusted capitalization, or if the level of parental support from Nationwide Mutual diminishes.

The rating affirmations of Nationwide Life Group and its subsidiaries reflect their strategic value to the Nationwide enterprise and strong presence in the life, annuity and retirement marketplaces, in addition to its diverse product offerings through multiple distribution channels. The affirmations also reflect favorable operating performance in recent years due to business growth, improved investment yields, higher persistency and favorable equity market performance. The continued profitability and absence of material dividends paid by the group has enabled Nationwide Life Group and its subsidiaries to grow capital organically and maintain a more-than-adequate level of risk-adjusted capitalization.

These strengths are partially offset by its business profile that maintains a significant portion of liabilities that have high equity market and interest rate sensitivity. While Nationwide Life Group holds prominent positions in its target markets, these markets remain highly competitive, which may impact sales and profitability trends. Additionally, the group has experienced some challenges in its retirement plan segment due to net outflows and high lapse rates.

A positive rating action for the companies that comprise the Nationwide Life Group, as well as the group’s subsidiaries, could occur if there is an upgrade by A.M. Best of Nationwide Mutual, its ultimate parent. Factors that may lead to negative rating action include a material decline in absolute and risk-adjusted capitalization due to operating and investment losses, a significant increase in sales of less creditworthy products, or a rating downgrade by A.M. Best of Nationwide Mutual.

For a complete listing of the Nationwide Group and its property/casualty and life/health subsidiaries’ FSRs, Long-Term ICRs and Short- and Long-Term IRs, please visit Nationwide Group.

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.

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