A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the key life insurance entities of ING U.S., Inc. (ING US) (headquartered in New York, NY) [NYSE: VOYA]. Following ING US’ initial public offering (IPO) last month, ING Groep N.V.’s (ING Group) (NYSE: ING) ownership was reduced from 100% to approximately 71%.
Concurrently, A.M. Best has affirmed ING US’ ICR of “bbb” and existing debt ratings as well as the ratings on the group’s existing funding agreement-backed securities program and related securities. The outlook for all ratings is stable. (Please see below for a detailed listing of the companies and debt ratings.)
The ratings recognize ING US’ strong market position in the life insurance and retirement markets, profitable operating results of its ongoing business and sound risk-adjusted capital at the insurance subsidiaries. The ratings also reflect A.M. Best’s expectation of the completion of the spin-off from ING Group in the near to medium term, which will demonstrate ING US’ ability to successfully execute its capital plans and achieve its targeted independent capital structure. To this end, over the last 12 months, ING US has issued $2.6 billion of senior notes and hybrid securities while raising approximately $1.5 billion from the IPO, of which about $600 million was retained by ING US. These transactions have enabled ING US to ladder its debt maturities and take advantage of the lower cost of funds. As such, ING US’ financial leverage (roughly 25%) and EBIT interest coverage (4-5 times) fall within A.M. Best’s guidelines for its current ratings. Moreover, ING US’ financial flexibility has been enhanced as the ordinary dividend capacity of the insurance operating companies was recently restored.
Partially offsetting these positive rating factors is the impact on earnings of ING US’ legacy variable annuity block, susceptibility of future earnings to spread compression as well as its material holdings (albeit reduced) of structured securities and commercial mortgage loans. Additionally, the inherent uncertainty surrounding the completion of the IPO process and rebranding to Voya Financial could negatively affect the group’s business profile with respect to products, customers, distribution and market positions. Additionally, similar to competitors in the term and universal life markets, ING US is reliant on letters of credit (LOCs) to support its life operations and therefore remains susceptible to capacity and pricing issues. A.M. Best notes that many of the newer products are less capital intensive and that the group has been replacing LOCs with more permanent financing alternatives.