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