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 release.
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
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 losses.
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
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
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
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,
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
--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'.
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 & Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended
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