|[June 16, 2014]
Fitch Rates Guardian Life's New Surplus Notes 'AA-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings assigns an 'AA-' rating to The Guardian Life Insurance
Company of America's (Guardian) new offering of $450 million 4.875%
surplus notes due 2064. Existing ratings assigned to Guardian and its
affiliates are unaffected by this issuance. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings are equivalent to the ratings assigned to Guardian's
existing surplus notes and reflect standard notching based on Fitch's
criteria. Surplus notes are subordinate in right of payment to both
policyholder and senior debt obligations of the insurance company.
Consistent with current outstanding surplus notes, interest and
principal payments on new surplus notes are subject to prior approval by
the New York State Insurance Department.
Guardian's very strong 'AA+' Insurer Financial Strength ratings continue
to reflect exceptionally strong balance sheet fundamentals, stable
operating results, and a favorable operating profile. The Stable Outlook
is driven by Fitch's expectations of continued sustainable solid
operating and investment performance for 2014, supported by conservative
product and distribution profiles. Fitch believes that the pressure on
profitability and capital driven by an extended low interest rate
scenario and future investment losses is manageable in the context of
the company's capital position and liability profile.
Guardian's very strong balance sheet fundamentals include extremely
strong risk-based capitalization, low leverage, and a stable liability
profile. The extremely strong capitalization and quality of capital are
key factors supporting the rating. Fitch estimates Guardian's risk-based
capital (RBC) ratio to be 499% at March 31, 2014. Total adjusted capital
(TAC) increased 1.6% to $6.2 billion at March 31, 2014 from $6.1 billion
at year-end 2013.
Financial leverage (surplus notes in relation to TAC) is expected to
increase to approximately 13% from 7% as of Dec. 31, 2013. The total
financing and commitments (TFC) ratio remains very low at 0.1x.
Guardian's recent operating performance has remained relatively stable
and in line with rating expectations. Reported statutory operating
rturn (after taxes and policyholder dividends) on TAC is in the 4% - 7%
range, consistent with peer mutual companies and reasonable given the
company's mix of business. Fitch also notes that Guardian has
significant flexibility to adjust policyholder dividends should
Debt servicing capabilities are very strong, as seen in fixed charge
coverage at 17x for 2013. Fitch expects interest coverage to remain
strong at above 12x for 2014 and approximately 10x on a run-rate basis.
Key rating drivers that could lead to a downgrade include a significant
decline in TAC or an RBC ratio below 400%; statutory financial leverage
above 15%; GAAP interest coverage below 7x; a deterioration in
disability claims experience causing a significant operating or capital
loss; and/or regulatory or tax law changes that hurt the company's
position in its primary whole life market.
Given that Guardian already has a rating in the second-highest category,
Fitch does not anticipate an upgrade at this time.
Fitch assigns the following rating:
The Guardian Life Insurance Company of America
--$450 million surplus notes 4.875% due June 19, 2064 at 'AA-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Nov. 13, 2013.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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