AM Best

DECEMBER 17, 2015 04:10 PM (EST)

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

 Greg Williams
Assistant Vice President—P/C
(908) 439-2200, ext. 5815

Joan Sullivan
Senior Financial Analyst—L/H
(908) 439-2200, ext. 5144
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

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


OLDWICK - DECEMBER 17, 2015 04:10 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 issue rating of “aaa” on the medium-term note program and the rating of AMB-1+ on the commercial paper program and assigned issue ratings on senior unsecured medium-term notes 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 are domiciled in San Antonio, TX. (See below for a detailed listing of the companies and ratings.)

The rating affirmations reflect USAA’s superior risk-adjusted capitalization and strong operating results through focused business and financial strategies. USAA maintains diversified sources of earnings 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 have 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 fifth-largest private passenger auto and fifth-largest homeowners’ policy provider, based on A.M. Best 2014 industry direct premium data. 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.

Modestly offsetting these positive rating factors is USAA’s exposure to frequent and severe weather-related events, with approximately 38% of its premium volume derived from catastrophe-prone states. This exposure was evidenced earlier in the most recent five-year period, as catastrophe activity resulted in considerable losses. However, as part of its ERM, USAA has developed strong catastrophe management and a sound reinsurance program that has preserved the capital and financial security of its membership through years of significant catastrophe activity, such as 2011 (extensive tornado hail losses and Hurricane Irene) and 2012 (Superstorm Sandy).

Factors that could result in downward movement of USAA’s ratings include a significant deterioration in underwriting and operating performance; a sudden large or catastrophic loss event that materially hinders risk-adjusted capitalization; significant adverse deviations from the company’s submitted financial projections; or 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 USAA’s life insurance arm of and benefits from parental resources, including advanced technology to support its life, annuity and health operations. Rating considerations also include strong liquidity coverage ratios and well-integrated ERM practices to monitor and mitigate stress events throughout the organization.

Partially offsetting rating factors include the challenges associated with maintaining the balance of earnings/reserves between 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 USAA Life’s 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 the 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 issue ratings have been affirmed:

USAA Capital Corporation

—“aaa” on the medium-term note program

—AMB-1+ on the commercial paper program

The following issue ratings have been assigned:

USAA Capital Corporation

— “aaa” on $250 million 2.250% senior unsecured bonds, due 2016

— “aaa” on $350 million 2.125% senior unsecured bonds, due 2019

— “aaa” on $400 million 2.450% senior unsecured bonds, due 2020

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.

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