Fitch Affirms Phoenix's Ratings; Rating Outlook Negative.Business Editors CHICAGO--(BUSINESS WIRE)--May 26, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. today affirmed all ratings assigned to The Phoenix Companies, Inc. (Phoenix Companies) and its wholly owned life insurance subsidiaries, Phoenix Life Insurance Company (Phoenix Life), and AGL (programming) AGL - (Atelier de Genie Logiciel) French for IPSE. Life Assurance Co. (collectively referred to as Phoenix). The Rating Outlook on all Phoenix Companies-related ratings remains Negative. A complete list of ratings is provided below. The Negative Rating Outlook reflects Fitch's concerns about the company's ability to improve its earning profile in line with Fitch's expectations for the rating category. In addition, Fitch recognizes that Phoenix has continuing exposure to the run-off of its workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. carve-out reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. business and that exposure is expected to become more quantifiable as arbitration hearings progress. The ratings continue to reflect Phoenix's stable in force block of traditional life insurance, high-quality liquid investment portfolio, strong capital base, excellent asset/liability management Asset/Liability Management A technique companies employ in coordinating the management of assets and liabilities so that an adequate return may be earned. Also known as "surplus management. program and conservative management team. The rating also considers that although the life insurance franchise has gone through significant product mix and distribution changes, the company appears to be developing a good niche position in the high net worth market as life sales through this transition have been maintained. Somewhat offsetting these positives are Phoenix Life's lack of economies of scale in the variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. business and continuing reliance on equity markets for operating performance. While Phoenix's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before have improved they remain modest reflecting moderate life insurance profitability depressed by weak and volatile results in the variable annuity and asset management businesses. Recent improved earnings have been driven by good mortality and persistency in the life insurance business, improved equity markets and lower expenses. In addition, operating earnings volatility declined after the company sold half of a $52 million venture capital portfolio and transferred the remainder of that portfolio into the closed block. In 2003, adjusted GAAP operating earnings (excluding the 2002 write-off of goodwill in the asset management business of $66.3 million) increased 18.3% in 2003 to $90.7 million from $76.7 million in 2002. For the rating Outlook to move to Stable, Fitch expects the company's profitability to improve to meet levels consistent with the rating category. Phoenix was a major reinsurer/retrocessionaire of pools of occupational accident carve-outs of workers' compensation business written by U.S. insurers up until 1999, when the company placed the business in run-off. The company's largest gross exposure is to various reinsurance pools/facilities managed by Unicover Managers Inc. (Unicover). While these pools have incurred substantial losses, Phoenix's exposure has been mitigated through settlement and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. arbitration decisions. However, Phoenix made extensive use of reinsurance (reinsuring to other reinsurers) to reduce its gross exposure and many of these reinsurance arrangements have been subject to dispute. These disputes are moving through the arbitration process and decisions are beginning to emerge. However, it is difficult at this time to assess the company's ultimate exposure relative to provisioning. Fitch will continue to monitor the Unicover proceedings to assess the impact on Phoenix. Phoenix Companies' equity adjusted financial leverage compares favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. to targets (approximately 20.1% at March 31, 2004). Fixed-charge coverage fixed-charge coverage The number of times that a firm's operating income exceeds its fixed payments. Fixed-charge coverage is a measure of a firm's ability to meet contractually fixed payments, with high coverage indicating significant flexibility for making at 3.2 times (x) through March 31, 2004 was weak and historically has been volatile due to the influence of venture capital performance results. Entity/Issue/Type Action Rating/Outlook Phoenix Companies, Inc. -- Long-term issuer Affirm 'A-'/Negative; -- Senior notes Affirm 'A-'/Negative; -- Equity Units Affirm 'BBB+'/Negative. Phoenix Life Insurance Company -- Insurer financial strength Affirm 'AA-'/Negative; -- Surplus notes Affirm 'A'/Negative. AGL Life Assurance Company -- Insurer financial strength Affirm 'AA-'/Negative. |
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