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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'AA+' Insurer Financial Strength (IFS) ratings of Guardian Life Insurance Company of America and its wholly owned subsidiary, Guardian Insurance & Annuity Company, Inc. (collectively referred to as Guardian). The Rating Outlook is Stable. A full list of ratings is at the bottom of this press release.
Guardian's very strong ratings reflect exceptionally strong balance sheet fundamentals, relatively stable operating results, and a favorable operating profile.
Guardian's exceptionally strong balance sheet fundamentals include strong risk-based capitalization, low leverage, and a stable liability profile. Fitch estimates that Guardian's risk-based capital ratio (RBC) was 479% as of June 30, 2012 and expects it to be in the 490% range at year-end. Total adjusted capital (TAC) increased to $5.6 billion as of June 30, 2012 from $5.5 billion at year-end 2011.
Guardian maintains low leverage. Financial leverage--surplus notes in relation to TAC--was low at 7% at June 30, 2012 and year-end 2011 compared to a Fitch maximum guideline of 15% for normal notching. The total financing and commitments (TFC) ratio is less than .1 times (x), and consolidated operating leverage is very low at 6x.
Guardian's debt servicing capabilities are strong. GAAP coverage of interest expense was 15x and 14x as of June 30, 2012 and Dec. 31, 2011, respectively.
Guardian's liability profile is relatively stable, with limited exposure to equity market volatility and disintermediation risk. Individual life insurance accounts for about 76% of consolidated general account reserves, while retail annuities account for just 6%. Fitch views the primary life product, participating whole life, as relatively low risk given its limited disintermediation risk, very limited guarantee provisions, and long duration.
Guardian's recent operating performance has remained relatively stable and is expected to be in line with rating expectations for the full year 2012. Guardian's reported statutory return on TAC is consistently in the 4%-5% range, which is below industry returns but reasonable given the company's mix of business. Guardian's pre-tax, post-dividend return on assets is above the mutual peer group average.
Fitch views Guardian's revenue and earnings streams as relatively diverse and of high quality. Results are driven by individual life, primarily recurring premium participating whole life, individual and group disability, as well as group life and dental. All core segments consistently contribute to results.
Fitch's key rating concerns include the macroeconomic headwinds associated with low interest rates and equity market volatility, the potential for significant deterioration in disability loss ratios in the current weak economic environment, and potential regulatory or tax law changes that could have a negative effect on Guardian's primary markets or distribution channels.
Key rating drivers that could lead to a downgrade include a significant decline in TAC or an RBC ratio below 400%; financial leverage above 15%; GAAP interest coverage below 7x; a deterioration in disability claims experience causing a significant operating or capital loss at the Berkshire subsidiary; and/or regulatory or tax law changes that hurt the company's position in its primary whole life market.
Given that Guardian already has the second highest rating, Fitch does not anticipate an upgrade at this time.
Fitch affirms the following ratings with a Stable Outlook:
Guardian Life Insurance Company of America
--Issuer Default Rating (IDR) at 'AA';
--Insurer Financial Strength (IFS) at 'AA+';
--Surplus notes at 'AA-'.
Guardian Insurance and Annuity Company
--IFS at 'AA+'.
Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Sept. 22, 2011.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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