On Tuesday, rating agency A.M. Best affirmed issuer credit rating (ICR) of “bbb” and “a” for Delphi Financial Group Inc (DFG) and its primary life insurance subsidiaries, Reliance Standard Life Insurance Company and First Reliance Standard Life Insurance Company. The financial strength rating of “A” for Delphi has also been affirmed. A.M. Best has also affirmed all debt ratings of Delphi Financial and Reliance Standard Life Global Funding. The outlook of all ratings remains negative.
 
The negative rating outlook reflects Delphi’s investment philosophy with a high level of concentration in structured assets such as non-agency residential mortgage-backed securities. This asset class has suffered the most recently leading to above average investment risk and subpar investment performance. 
 
Reliance standard’s fixed income portfolio has reported large unrealized losses in the year till date. However, capital infusions by Delphi through capital raised earlier during the year have improved its capital position. Given the weak economy, the unit has recorded lower production for the first nine months of 2009. Reliance Standard’s core small-case group disability and life products will likely encounter increasing competitive challenges as more carriers are beginning to focus on this market niche. Positives include stable loss ratios and benefits of diversification through its growing asset accumulation business as well as its portfolio of voluntary offerings and its limited benefit medical offering.
 
A.M.Best acknowledges Delphi’s low long-term debt to total financial capital ratio which stood at 23.5% at Sep 30, lower than 26.1% at the end of 2008.
 
The rating agency has also revised the outlook to stable from negative and affirmed the FSR of A and ICR of “a” of Safety National Group, a property and casualty unit of Delphi. The rating agency acknowledges the company’s favorable operating performance, its niche in excess workers’ compensation market and more than adequate capitalization. Safety National has more than the required capital cushion in view of the capital support of its parent and growth from strong earnings expected over the near term. Negatives include unfavorable reserve development and volatile investment returns, constricting internal capital growth.
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