13th November 2023 - Author: Kassandra Jimenez-Sanchez
Moody’s has downgraded the Nationwide Mutual Insurance Company (NMIC) and its property & casualty affiliates, Nationwide P&C, insurance financial strength rating to A2 from A1, and downgraded NMIC’s surplus notes rating to Baa1 (hyb) from A3 (hyb).
The rating agency has also affirmed the insurance financial strength ratings of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company at A1 and the senior unsecured debt rating of Nationwide Financial Services (NFS) at Baa1.
The rating outlook for Nationwide P&C and NFS is stable, Moody’s added.
According to the announcement, Nationwide P&C’s rating downgrade reflects its weak profitability over the past several years. This was mainly due to standard personal and standard commercial lines experiencing high loss cost inflation along with sizable catastrophe losses, Moody’s noted.
“In response to this issue, Nationwide P&C is raising rates, tightening underwriting standards, and investing in automation and digitization to become more efficient,” analysts explained.
Adding: “ Over time, the group is shifting some of its underwriting focus from standard P&C lines toward excess and surplus and other specialty lines, while also shifting some of its distribution from independent agents toward wholesale and brokerage channels. It could take a couple years for Nationwide P&C to work through this transition and achieve its target underwriting results.”
Nationwide P&C’s ratings benefit from a solid market presence among the 10 largest US P&C insurers; its diversified product offerings and geographic reach across the US; and its mutual ownership, Moody’s highlighted.
The relatively steady earnings of NFS is an added benefit to Nationwide P&C, as well as the large capital base of Nationwide Enterprise, which encompasses both Nationwide P&C and NFS, Moody’s added.
Yet, Nationwide P&C’s weak/volatile earnings record, exposure to catastrophe losses in property lines, and exposure to adverse reserve development in casualty lines, including a runoff asbestos and environmental book, could offset these strengths, analysts warned.
Regarding NFS, the rating affirmation of its insurance financial strength reflects its strong position in US life insurance, annuities and retirement plans along with its diversified distribution channels and brand recognition, according to Moody’s
Its robust capitalization, including a relatively high regulatory risk-based capital (RBC) ratio, coupled with Nationwide Enterprise’s strategic focus on NFS support continued growth across its target products, analysts added.
Yet, these strengths are offset by the challenges of managing contract guarantees in variable annuity (VA) liabilities, which expose NFS’ capital and earnings to equity market and interest rate risks.
At the same time, NFS also offers lower-margin asset accumulation products such as pension plans and mutual funds, which add further earnings sensitivity to equity markets and interest rates.
Other challenges, Moody’s highlighted, include NFS’ relatively high exposure to commercial mortgage loans (18% of cash and invested assets at year-end 2022) and the possibility that NFS would allocate some of its capital to support Nationwide P&C’s credit profile.
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