Rating Action on Delphi

{"s" : "dfg","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Zacks Equity Research, On Tuesday December 14, 2010, 6:20 pm EST

Yesterday, Delphi Financial Group Inc., (NYSE: DFG - News) and its primary life and health insurance units, Reliance Standard Life Insurance Co. and First Reliance Standard Life Insurance Co. both received an affirmation of “A” for financial strength rating (FSR) and “a” for issuer credit ratings (ICR) from the rating agency A.M. Best.

It also affirmed all debt ratings of Delphi Financial and Reliance Standard Life Global Funding. The outlook on all ratings has been upgraded to stable from last year’s negative.

The positive outlook revision for Delphi’s life and health subsidiaries emanates from the evident recovery in the investment portfolio of these units. Improved capital level as a result of capital infusions by the parent, which stands above the minimum required limits is another positive factor. The rating agency also acknowledges the units’ favorable operating performance and underwriting discipline in the midst of a weak pricing environment and competitive market conditions.

However, A.M. Best is concerned about Reliance Standard’s investment portfolio, which has a high concentration of structured securities and below investment grade bonds relative to its peers. The rating agency also feels that the continuing low interest rate environment might drag the earnings of the units going forward. 

A.M. Best has also affirmed the stable outlook, the FSR of A and ICR of “a on Safety National Group, a property and casualty unit of Delphi. The rating agency acknowledges the company’s favorable operating performance, its niche in excess workers’ compensation market and more than adequate capitalization.

Safety National has more than the required capital cushion given the capital support from its parent and the expected strong earnings growth over the near term. Negatives include unfavorable reserve development and volatile investment returns, which constrict internal capital growth.

DELPHI FINL GROUP INC (DFG): Read the Full Research Report

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Rating Action on Principal Fin.

{"s" : "lnc,pfg","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Zacks Equity Research, On Friday December 10, 2010, 11:50 am EST

A.M. Best Co. affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of “aa-” of Principal Life Insurance Company and Principal National Life Insurance Company, the life insurance operating companies of Principal Financial Group Inc. (NYSE: PFG - News). The outlook was revised to stable from negative.

Also, the rating agency affirmed the ICR of “a-” of Principal Financial and its existing debt ratings. The outlook was revised to stable from negative

The revised outlook was based on Principal Financial’s diverse revenue stream, improving capitalization as well as prudent expense management. The company’s focus on fee-based businesses helped it to post less volatile operating results.

The rating affirmation came on the back of the company’s strong position in the U.S. defined contribution plan market, its broad distribution, diversified product offering, continued global growth and solid cash position. The rating agency also believes Principal Financial’s decision to exit the group medical business as a long-term positive. The medical business has been declining over some years. Following the divestiture, the company will now focus its capital and other resources on strategic opportunities in the growing asset accumulation and asset management businesses.

However, a decline in deposits resulting in lower cash flows was a partial offset. The rating agency expects additional asset impairment in spite of Principal Financial’s crucial turnaround in its investment portfolio valuations. A.M. Best also expects higher commercial mortgage delinquency rates on the company’s commercial mortgage-backed securities portfolio (CMBS) over the near term, likely resulting in additional losses on the $4.3 billion CMBS portfolio. The soft market conditions can also result in additional commercial real estate related investment losses from its $8.8 billion direct commercial mortgage loan portfolio.

On the third quarter conference call, Principal Financial guided full year 2010 Full Service Accumulation sales to be higher by 15% to 20% from the 2009 level that would lead to positive cash flows. Recently, the company also guided full year 2011 operating earnings in a range of $2.80 to $3.00 per share.

Lincoln National Corporation (NYSE: LNC - News), one of Principal Financial’s close peers, also received FSR affirmation of A+ (Superior) and ICR of “aa-” on key life/health subsidiaries. The rating agency also affirmed the ICR of “a-” as well as the existing debt ratings of Lincoln. The outlook for all ratings at Lincoln remains stable.

Based on higher delinquencies in its commercial mortgage portfolio as well as persistently high unemployment levels that restrict participation in the existing employee benefit plans, we maintain our “Neutral” recommendation on Principal Financial. The quantitative Zacks #3 Rank (short-term Hold rating) indicates no clear directional pressure on the shares over the near term.

Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries.

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