Following the announcement of a proposed acquisition of Delphi Financial Group, Inc.(DFG) by Tokio Marine Holdings, Inc. (TMHD), Fitch Ratings has placed the 'BBB' Issuer Default Rating (IDR) of DFG on Rating Watch Positive. In addition, the 'A-' Insurer Financial Strength (IFS) ratings on DFG subsidiaries Reliance Standard Life Insurance Company (RSL), First Reliance Standard Life Insurance Company (FRSL), and Safety National Casualty Corporation (SNCC) were also placed on Rating Watch Positive. A complete listing of ratings follows at the end of this release.
Tokio Marine & Nichido Fire (TMNF) is the main operating subsidiary of TMHD and is the largest property/casualty insurer in Japan. TMNF's financial strength is rated 'AA-' by Fitch and the company operates in the U.S. through a branch office and a subsidiary, Philadelphia Insurance Companies, acquired in 2008.
TMHD is offering approximately $2.7 billion in cash for DFG and the acquisition is expected to close early in the second quarter of 2012, pending shareholder and regulatory approvals. The transaction represents a sizeable premium over Sept. 30, 2011 book value of $1.7 billion. DFG's common stock had been trading at a discount to book value before the acquisition was announced.
TMHD reported net premiums of $17.4 billion through the first half of fiscal 2011, which is on pace to exceed premiums of approximately $30 billion from fiscal year 2010. Net income was $1 billion in the first half of fiscal 2011, which is down following an estimated $360 million in losses from the March 2011 earthquake. TMHD reported stockholders' equity of $23 billion at the close of the second quarter of fiscal 2011, which is down 17% from the end of fiscal year 2009.
DFG is likely to remain intact and operate autonomously after the acquisition. DFG shares a common target customer as Philadelphia Insurance, but there is minimal to no overlap in products offered by the companies.
Overall, Fitch views the acquisition favorably as DFG should benefit from a larger, more highly rated parent. The resolution of the Positive Watch on DFG's ratings will depend on financial support from TMNF as well as DFG's strategic fit within the TMHD enterprise.
DFG reported net income of $116 million on total revenues of $1.3 billion through the first nine months of 2011. Shareholders' equity was $1.7 billion as of Sept. 30, 2011, increasing from $1.5 billion at the end of 2010.
Key rating triggers for the resolution of DFG's Rating Watch that could lead to an upgrade include:
--Closing of the acquisition by TMHD;
--At a minimum DFG representing a strategically 'important' part of the TMHD enterprise;
--Maintenance of insurance operating subsidiaries' statutory capitalization at current levels.
Fitch placed the following ratings on Watch Positive.
Delphi Financial Group, Inc.
--IDR at 'BBB';
--Senior notes due 2020 at 'BBB-'.
--7.376% junior subordinated notes due 2067 at 'BB'.
Reliance Standard Life Insurance Co.
--Issuer Financial Strength (IFS) at 'A-'.
First Reliance Standard Life Insurance Co.
--IFS at 'A-'.
Safety National Casualty Corp.
--IFS at 'A-'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept 22, 2011).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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Contacts:
Fitch Ratings
Primary Analysts:
Delphi Financial Group and
Life Operations
Bruce Cox, +1-312-606-2316
Director
Fitch,
Inc.
70 West Madison St.
Chicago, IL 60602
or
Safety
National Casualty Corp.
Douglas Pawlowski, +1-312-368-2054
Senior
Director
or
Secondary Analysts:
Julie Burke,
+1-312-368-3158
Managing Director
or
Martha Butler,
+1-312-368-3191
Senior Director
or
Committee Chairperson:
Douglas
Meyer, +1-312-368-2061
Managing Director
or
Media
Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com