A.M. Best Revises Nationwide Group Outlook To Negative

A.M. Best Co. has revised the outlook of Nationwide Group to negative from stable due in part to the historical impact of storm losses on the group coupled with reduced investment income.

The Oldwick, N.J.-based rating agency said it concurrently has revised the outlook to negative from stable and affirmed the debt ratings of "a" of the $1.5 billion in existing surplus notes of Nationwide Mutual Insurance Company.

Nationwide said it remains financially strong despite difficult economic times.

Best said it considered the historical impact of storm losses on Nationwide Group's underwriting performance as part of the outlook adjustment.

"A.M. Best expects management may be challenged to rebuild surplus based upon historical underwriting performance and reduced investment income given the current volatility in the financial markets," Best said.

The rating agency also cited as a reason for the revised outlook the "precipitous decline in risk-adjusted capitalization associated with the early 2009 privatization of Nationwide Financial Services Inc. (NFS)." NFS is now a wholly-owned subsidiary of Nationwide Mutual after Nationwide Mutual completed its acquisition of all of the outstanding publicly held Class A shares of common stock of NFS following shareholder approval on Dec. 31, 2008.

In a separate announcement, Best said it has revised the outlook on NFS to negative from stable due to "the recent negative trends in capitalization, financial and investment performance, and assets under management, which have largely been driven by the current recessionary environment."

A.M. Best said NFS' heavy correlation to the equity markets and the overhang associated with its investment portfolio will likely challenge the company's earnings as the current environment persists. NFS' investment portfolio "maintains significant unrealized loss positions in non-agency residential mortgage-backed securities, commercial mortgage-backed securities and corporate bonds," commented Best.

Joe Case, Nationwide spokesman in response said, "Nationwide remains fully able to meet its business obligations, pay claims and deliver personalized customer service to our policyholders."

He said the company is disappointed with the ratings actions, but "they are not surprising given the severity of the events of the last several months and uncertainty of how long these challenging market and economic conditions will persist."

Making NFS a wholly owned subsidiary of Nationwide Mutual, he added "provides us with tremendous flexibility to better serve our customers," but rating agencies "view it from a financial perspective as limiting our capital flexibility, despite acknowledging that we have capital even in excess of the target levels associated with our prior ratings."

This article updated Jan. 29, 9:40 a.m.