A.M. Best Affirms Ratings of Delphi Financial Group, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the financial strength ratings of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the life/health subsidiaries, Reliance Standard Life Insurance Company (Chicago, IL) and First Reliance Standard Life Insurance Company (New York, NY) (together referred to as Reliance Standard), as well as the property/casualty subsidiaries, Safety National Casualty Corporation (St. Louis, MO) and its reinsured affiliate, Safety First Insurance Company (Chicago, IL) (together referred to as Safety National) of Delphi Financial Group, Inc. (DFG). DFG is a direct subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc. (Tokio Marine), Japan’s largest non-life insurance organization.

Concurrently, A.M. Best has affirmed the ICR of “a-” and existing debt ratings of DFG. The outlook for all the above ratings is stable.

A.M. Best also has assigned a debt rating of “aa-” to Reliance Standard Life Global Funding II (Delaware), DFG’s newly established funding agreement-backed securities program. The outlook assigned to the rating is stable. (Please see below for a detailed list of the debt ratings.)

The ratings of Reliance Standard reflect the strength and support of its ultimate parent, Tokio Marine, its established presence within the small to mid-size employee benefits marketplace, its disciplined pricing philosophy and the group's adequate risk-adjusted capital position, despite some elevated risk within certain segments of its general account investment portfolio. While the portfolio has significant exposure to structured securities, as well as some Puerto Rico government bonds, A.M. Best believes the life/health companies maintain ample capital to absorb potential losses. A.M. Best notes that the group has begun to benefit from synergies with its parent, including taking advantage of select cross-selling opportunities and expense efficiencies by combining certain vendor contracts. In addition, DFG, as an intermediate holding company, maintains a reasonable debt-to-capital ratio at approximately 20% (incorporating some equity credit for hybrid securities) and has solid interest coverage of roughly nine times.

While loss ratios have somewhat fluctuated over the past five years, the group has implemented appropriate rate increases during this time and tightened underwriting. This tightening has negatively impacted sales but has resulted in favorable statutory operating results with a statutory return-on-equity ratio of nearly 20% for 2013. Overall net premiums have been positively trending in recent periods partially due to the group’s favorable persistency, the aforementioned premium rate increases and the introduction of new insurance products, including medical stop-loss. Reliance Standard’s asset accumulation business also continues to add scale, profitability and product diversification. A.M. Best notes that the life/health group has been successful in maintaining healthy interest spreads in the challenging low rate environment. In addition, its unique offerings in absence management and integrated disability differentiate Reliance Standard in the large case employee benefits market.

Safety National’s ratings reflect its consistently strong operating performance, sound risk-adjusted capitalization – achieved in part through the implicit and explicit support from DFG and Tokio Marine – as well as its established presence within the excess workers’ compensation market. Partially offsetting these positive rating factors are areas of ongoing calendar adverse loss reserve development and the investment market fluctuations that have hampered the property/casualty group’s ability to organically generate capital. Despite these concerns, the stable outlook recognizes the group’s historically solid profitability levels, which outperform its peer composite, and A.M. Best’s expectation that Safety National should generate surplus growth through strong earnings over the near term.

The positive rating attributes reflect the group's disciplined underwriting standards, service-oriented business approach and experienced management team. Furthermore, DFG and Tokio Marine are fully committed to supporting Safety National’s operations.

Given the stable outlook, A.M. Best believes positive rating actions on DFG and its subsidiaries are unlikely in the near to medium term. Over time, a positive rating action may occur if DFG’s operations become a significant contributor to the enterprise’s earnings and are material to the business profile of Tokio Marine. Factors that could lead to negative rating actions include a material decline in DFG’s stand-alone operating profitability, increased investment risk and/or realized losses beyond A.M. Best’s expectations, which would reduce risk-adjusted capital levels, or a change in A.M. Best’s view of the strategic importance of DFG and its subsidiaries to Tokio Marine.

The following debt ratings have been affirmed:

Delphi Financial Group, Inc.—

-- “a-” on $250 million 7.875 % senior unsecured notes, due 2020

-- “bbb” on $175 million fixed/floating rate junior subordinated debentures, due 2037

The following debt ratings have been assigned:

Reliance Standard Life Global Funding II “aa-” program rating

-- “aa-” on all outstanding notes issued under the program

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best
Michael Adams—L/H
Senior Financial Analyst
(908) 439-2200, ext. 5133
Brian O’Larte—P/C
Senior Financial Analyst
(908) 439-2200, ext. 5138
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644

Source: A.M. Best Company