(The following statement was released by the rating agency)
Jan 18 - Fitch Ratings has affirmed the Insurer Financial Strength (IFS)
ratings of United Services Automobile Association (USAA) and its insurance
subsidiaries at 'AAA'. Additionally, Fitch has affirmed the Issuer Default
Rating (IDR) of USAA Capital Corporation (USAA CapCo) at 'AAA' and its senior
unsecured notes at 'AA+'. A full list of ratings follows at the end of this
USAA's ratings reflect its strong competitive position in a stable niche market
providing insurance and other financial products to military and ex-military
personnel and their families. The ratings also reflect USAA's exceptionally
strong capitalization, solid liquidity, continued disciplined underwriting, and
historically low financial leverage. Offsetting factors include the company's
catastrophe risk and the lower credit profile of its banking operation.
Through Sept. 30 2012, USAA generated surplus growth of $1.8 billion primarily
due to strong earnings and unrealized investment gains. Fitch views the
company's continued capital growth, despite significant catastrophe losses in
recent years, as a pillar of strength to the rating.
In November 2012, USAA reported an initial loss estimate related to Hurricane
Sandy of $143 million to $525 million. Fitch does not expect losses to exceed
the high end of the range, which the agency views as in line with expectations
given its market share. Still, Fitch expects full year 2012 earnings to remain
strong and improved over the prior year, which experienced record catastrophe
Fitch views USAA's capital position as exceptionally strong based on its 838%
NAIC risk-based capital (RBC) ratio and 'extremely strong' score on Fitch's
Prism economic capital model at year-end 2011. Additionally, the company
maintains conservative statutory net leverage (measured by net written premiums
and liabilities to surplus) at approximately 1.4x, which exposes less of its
surplus to pricing and reserve risk as compared with peers. Fitch expects
capital strength to remain solid at year-end 2012.
USAA utilizes a relatively prudent investment strategy with virtually no
exposure to below-investment-grade fixed income securities or direct sovereign
exposure, and modest exposure to equities. However, USAA has sizeable exposure
to structured securities, largely CMBS and ABS, comprising approximately 20% of
its investment portfolio. This is somewhat mitigated by the high credit quality
and seniority of the tranches.
USAA's financial leverage is expected to remain low at year-end 2012 with a debt
to capital ratio below 4% and a total financing & commitments (TFC) ratio, a
comprehensive measure of all financing activities including both recourse and
non-recourse securitizations, near prior year levels of 0.12x. Interest coverage
is also expected to remain strong and improved over prior year levels due to
greater earnings expectations.
Investments in illiquid subsidiaries represent approximately 40% of USAA's
surplus. USAA CapCo., which owns USAA FSB and USAA Real Estate Company, is the
largest subsidiary. Significant growth in the banking operation and/or real
estate company would alter USAA's operating profile and could promote negative
rating pressure. Fitch notes that USAA has a support agreement with USAA CapCo
that requires USAA to maintain CapCo's net worth at not less than $1 million and
to retain ownership of 100% of CapCo's common stock.
Fitch continues to view the asset quality of USAA FSB favorably when compared to
banking peers. Fitch views the bank's capitalization as adequate with a Tier 1
risk-based capital ratio of 12.9% as of Sept. 30, 2012.
Fitch views the strategic category of USAA Life Insurance Company as 'Core' and,
as a result, it continues to receive upward lift to the USAA group rating level.
This reflects Fitch's view of the complementary nature of USAA's life products
to its distribution channel.
Key rating triggers that could lead to a downgrade include:
--A material deterioration in balance sheet strength, including net statutory
leverage - defined as net written premiums and liabilities divided by surplus
-above 2.0x for property/casualty operations and 2.7x excluding surplus for
affiliated life insurance subsidiaries and USAA Capital Corp.;
--Sharp and sustained weakening of underwriting results;
--TFC ratio at or above 0.4x;
--Significant growth in the banking operation would alter USAA's operating
profile and could promote negative rating pressure.
Fitch has affirmed the following ratings with a Stable Outlook:
USAA Capital Corp.
--IDR at 'AAA';
--Short-term IDR and commercial paper at 'F1+';
--3.5% $200 million medium-term notes due July 17, 2014 at 'AA+';
--1.05% $250 million senior unsecured notes due Sept. 30, 2014 at 'AA+';
--2.288% $250 million senior unsecured notes due Dec. 13, 2016 at 'AA+'.
Primary insurance companies:
United Services Automobile Association
USAA Casualty Insurance Company
USAA General Indemnity Company
USAA County Mutual Insurance Company
USAA Texas Lloyds Co.
USAA Life Insurance Company
--IFS at 'AAA'.
(Caryn Trokie, New York Ratings Unit)