-- 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
-- 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
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
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
Ratings Upgrade; Outlook Action
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