TEXT-S&P raises Commonwealth Annuity FSR to 'A-'

Wed Nov 7, 2012 3:41pm EST

-- Commonwealth Annuity and Life Insurance Co. has displayed consistent 
strong operating performance.
     -- We continue to consider the company as strategically important to 
parent Goldman Sachs Group Inc. and believe it benefits from their 
relationship.
     -- We are raising our long-term counterparty credit and financial 
strength ratings on Commonwealth and its 100% owned operating subsidiary, 
First Allmerica Financial Life Insurance Co., to 'A-' from 'BBB+'. At the same 
time we revised the outlook to negative.
     -- We expect Commonwealth to further grow its business through 
opportunistic acquisitions.

NEW YORK (Standard & Poor's) Nov. 7, 2012--Standard & Poor's Ratings Services 
said today that it has raised its long-term counterparty credit and financial 
strength ratings on Commonwealth Annuity and Life Insurance Co. and wholly 
owned subsidiary First Allmerica Financial Life Insurance Co. (collectively, 
Commonwealth) to 'A-' from 'BBB+'. At the same time we revised the outlook to 
negative from stable.
    
The ratings on Commonwealth, the wholly owned insurance subsidiaries of The 
Goldman Sachs Group Inc. (Goldman), reflect Commonwealth's strong
earnings and capital position, and strong investment performance leveraging
Goldman Sachs Asset Management.
    
"Over the past several years, Commonwealth has consistently displayed strong 
operating performance, with double-digit return on capital metrics," said 
Standard & Poor's credit analyst Carmi Margalit. "The company has also been 
able to repeatedly source block acquisitions, albeit sporadically, that are 
consistent with its return expectations. We believe the company has benefited 
from its relationship with Goldman, specifically from the Goldman Sachs brand 
name, the potential for the contribution funds if needed, and the parent's 
client relationships and expertise."
    
Commonwealth's narrow competitive position, opportunistic investment with 
nonagency residential mortgage-backed securities asset concentration, and 
limited stand-alone financial flexibility-which could make it dependent on its 
parent for capital to complete significant transactions, partially offset the 
strengths.
We continue to consider Commonwealth as strategically important to Goldman as 
per our group rating methodology. But we don't believe that Commonwealth, 
unlike Goldman, is a highly systemically important institution that could 
count on support from the U.S. government. Our assessment reflects 
Commonwealth's stand-alone credit profile and, therefore, excludes any ratings 
uplift from government support.

The outlook is negative, reflecting our negative outlook on Commonwealth's 
parent company, Goldman. We expect Commonwealth to continue to increase its 
earnings and balance sheet by opportunistically adding new business. We expect 
Commonwealth to maintain a double-digit return on capital, excluding realized 
gains and losses, above 10%. We expect the company's capital adequacy to 
remain redundant at the 'A' level.
    
"We could lower the ratings if Commonwealth's operating performance 
deteriorates, capital adequacy weakens and no longer support the ratings, or 
the company significantly changes its overall risk profile," Mr. Margalit 
continued. "Given Commonwealth's close ties to its parent, it's unlikely that 
we will raise the rating above our public 'A-' rating on Goldman."

RELATED CRITERIA AND RESEARCH
     -- Summary: The Goldman Sachs Group Inc., March 12, 2012
     -- Criteria: Group Rating Methodology And Assumptions, Nov. 9, 2011

RATING LIST

Ratings Upgrade; Outlook Action

                                        To                From
Commonwealth Annuity and Life Insurance Co.
First Allmerica Financial Life Insurance Co.
 Counterparty Credit Rating
 Financial Strength Rating              A-/Negative       BBB+/Stable


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article