Life Insurance Unit Sales Threaten Credit Ratings, Moody’s Says

Sales of U.S. units by insurers such as Aviva Plc and Sun Life Financial Inc. may pressure the credit ratings of subsidiaries that could be divested by other companies, Moody’s Investors Service said today in a report.

Moody’s often gives subsidiaries higher ratings than they would merit on their own, based on the strength of parent companies, the ratings firm said. The divestitures of units once seen as important calls into question whether the extra benefit is merited, Moody’s said.

“This trend challenges the notion of ‘strategic subsidiary’ and the extent of rating uplift from implicit parental support,” according to a report from Moody’s analysts led by Ann Perry. “The strategic importance of subsidiaries can lack permanence.”

Moody’s has downgraded subsidiaries following divestitures by five insurers over the past year, according to the report. Sun Life’s former U.S. unit saw its financial-strength rating cut by two levels after the Toronto-based company announced a deal to sell the business to investors tied to Guggenheim Partners LLC. An insurer owned by Goldman Sachs Group Inc. was lowered one grade as the bank divested about 80 percent.

“Some companies that historically provided implicit and explicit support to strategically significant subsidiaries are divesting these operations,” Moody’s said. Divestitures have been fueled by “chronic underperformance, shifts over time in enterprise priorities/strategies, and rationalization of legal entities.”

Aviva, Axa

Other former subsidiaries that saw downgrades include units of Paris-based Axa SA, London’s Aviva, and Allstate Corp. Discretion Winter, a spokeswoman for Axa’s U.S. unit, declined to comment on the Moody’s report. Axa reached a deal this year to sell some obligations tied to policies issued in past years. The deal with Protective Life Corp. helped free up capital, the French company has said.

U.S. life insurance sales are “absolutely core to our U.S. business strategy,” Winter said.

Hartford Financial Services Group Inc., Prudential Plc, Manulife Financial Corp. and Allianz SE are among insurers with subsidiaries that benefit from parental support, Moody’s said. Tom Hambrick, a spokesman for Hartford, which is based in the Connecticut city of the same name, had no immediate comment.

Allianz is committed to bolstering operations in the U.S., Gary Bhojwani, the management board member responsible for the Munich-based company’s U.S. insurance business, said in an interview this month.

Tidjane Thiam, the chief executive officer of London-based Prudential, said this month that the Jackson National Life U.S. unit has a “great future” with the company.

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