Fitch Rates Guardian Life's New Surplus Notes 'AA-'; Outlook Stable

Mon Jun 16, 2014 5:46pm EDT

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(The following statement was released by the rating agency) CHICAGO, June 16 (Fitch) Fitch Ratings assigns an 'AA-' rating to The Guardian Life Insurance Company of America's (Guardian) new offering of $450 million 4.875% surplus notes due 2064. Existing ratings assigned to Guardian and its affiliates are unaffected by this issuance. The Rating Outlook is Stable. KEY RATING DRIVERS The ratings are equivalent to the ratings assigned to Guardian's existing surplus notes and reflect standard notching based on Fitch's criteria. Surplus notes are subordinate in right of payment to both policyholder and senior debt obligations of the insurance company. Consistent with current outstanding surplus notes, interest and principal payments on new surplus notes are subject to prior approval by the New York State Insurance Department. Guardian's very strong 'AA+' Insurer Financial Strength ratings continue to reflect exceptionally strong balance sheet fundamentals, stable operating results, and a favorable operating profile. The Stable Outlook is driven by Fitch's expectations of continued sustainable solid operating and investment performance for 2014, supported by conservative product and distribution profiles. Fitch believes that the pressure on profitability and capital driven by an extended low interest rate scenario and future investment losses is manageable in the context of the company's capital position and liability profile. Guardian's very strong balance sheet fundamentals include extremely strong risk-based capitalization, low leverage, and a stable liability profile. The extremely strong capitalization and quality of capital are key factors supporting the rating. Fitch estimates Guardian's risk-based capital (RBC) ratio to be 499% at March 31, 2014. Total adjusted capital (TAC) increased 1.6% to $6.2 billion at March 31, 2014 from $6.1 billion at year-end 2013. Financial leverage (surplus notes in relation to TAC) is expected to increase to approximately 13% from 7% as of Dec. 31, 2013. The total financing and commitments (TFC) ratio remains very low at 0.1x. Guardian's recent operating performance has remained relatively stable and in line with rating expectations. Reported statutory operating return (after taxes and policyholder dividends) on TAC is in the 4% - 7% range, consistent with peer mutual companies and reasonable given the company's mix of business. Fitch also notes that Guardian has significant flexibility to adjust policyholder dividends should experience warrant. Debt servicing capabilities are very strong, as seen in fixed charge coverage at 17x for 2013. Fitch expects interest coverage to remain strong at above 12x for 2014 and approximately 10x on a run-rate basis. RATING SENSITIVITIES Key rating drivers that could lead to a downgrade include a significant decline in TAC or an RBC ratio below 400%; statutory financial leverage above 15%; GAAP interest coverage below 7x; a deterioration in disability claims experience causing a significant operating or capital loss; and/or regulatory or tax law changes that hurt the company's position in its primary whole life market. Given that Guardian already has a rating in the second-highest category, Fitch does not anticipate an upgrade at this time. Fitch assigns the following rating: The Guardian Life Insurance Company of America --$450 million surplus notes 4.875% due June 19, 2064 at 'AA-'. Contact: Primary Analyst R. Andrew Davidson, CFA Senior Director +1-312-368-3144 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Douglas Meyer, CFA Managing Director +1-312-368-2061 Committee Chairperson Brian C. Schneider Senior Director +1-312-606-2321 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology', Nov. 13, 2013. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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