(The following statement was released by the rating agency)
NEW YORK, Dec 17 - Standard & Poor's Ratings Services said today that it affirmed its 'AAA' counterparty credit and financial strength ratings on United Services Automobile Assoc., USAA Casualty Insurance Co., and USAA General Indemnity Co. (collectively referred to as USAA or the Group).
At the same time, Standard & Poor's affirmed its 'AAA' counterparty credit and senior debt ratings and its 'A-1+' commercial paper rating on USAA Capital Corp.
In addition, Standard & Poor's affirmed its 'AAA' counterparty credit and financial strength ratings on USAA Life Insurance Co. and USAA Life Insurance Co. of New York (collectively, USAA Life) as these entities are considered core to the parent company.
The outlook is stable.
"The ratings are based on USAA's extremely strong capital adequacy (albeit lower than historical levels), extremely strong business position, better-than-industry-average liquidity, and improved operating performance," said Standard & Poor's credit analyst Polina Chernyak. "USAA's investment portfolio allocation is also a positive rating factor, as the company has sold all its common equity holdings as of August 2002, so it has less investment risk than its peers."
With narrower spread of risk than one would normally expect from a nationwide insurer geographic spread and financial flexibility are viewed as slight weaknesses to the rating because USAA's policyholders' higher concentration in areas exposed to catastrophic losses from natural events and its structure as a reciprocal insurance exchange limited the company's access to the capital markets compared with stock companies.
USAA has a leadership position in personal lines, and increased rates will have a favorable effect on earnings as pricing adequacy continues to improve, although at a slower pace, in the industry. As a result, USAA's operating results are expected to have further increases in 2003 and 2004. The combined ratio in 2003 is projected at 87%-90% (excluding policyholder dividends), which is significantly better than the personal lines peer group at 99%-100%. USAA's more conservative investment allocation, with an increased bond weighting, will lead to liquidity that is better than industry averages. Standard & Poor's expects USAA's capital adequacy to remain extremely strong.
The USAA family of companies is headed by the ultimate parent, United Services Automobile Assoc., a reciprocal interinsurance exchange that provides auto and homeowners' insurance primarily to U.S. military officers and noncommissioned officers. Its rated insurance affiliates include USAA Casualty Insurance Co., which writes similar insurance mainly for children of members and USAA General Indemnity Co., which writes nonstandard auto coverages for the membership. The companies provide a wide range of insurance and financial products, including property/casualty; health and life insurance; annuities; no-load mutual funds; discount brokerage services; credit cards; banking; and alliance services.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Credit Ratings Lists. Standard & Poor's ratings appear alphabetically.