Fitch Affirms Phoenix Companies Inc. IFS Ratings at 'BB+'; Outlook Revised to Stable

CHICAGO--()--Fitch Ratings has affirmed the 'BB+' Insurer Financial Strength (IFS) ratings of Phoenix Companies, Inc.'s (PNX) primary insurance subsidiaries. At the same time Fitch has also assigned new ratings to PNX and Phoenix Life Insurance Company (Phoenix Life), while withdrawing the 'BB+' IFS ratings assigned to Phoenix Life and Annuity Company and AGL Life Assurance Company. The Rating Outlook is revised to Stable from Negative. A full rating list is shown below.

The rating affirmation and Stable Outlook is based on improvements in PNX's capital and earnings profile. Year-end 2010 total adjusted capital (TAC) was $892 million and consolidated risk based capital (RBC) was 282% at Dec. 31, 2010 versus $731 million and 223%, respectively for 2009. At March 31, 2011 the company estimates these figures to be $929 million and 308%, respectively, which represent meaningful improvement in PNX's capital adequacy.

PNX's capital profile has also benefited from improved asset quality. PNX's below investment grade securities (BIGS) fell to 8.2% and 8.7% of fixed maturities at March 31, 2011 and year-end 2010, respectively from 10.8% at year-end 2009. At the same time gross unrealized losses have fallen by slightly more than half to under $300 million and are in a gain position on a net unrealized basis.

PNX reported a $13 million GAAP net loss in 2010 compared to a $319 million net loss in 2009. The $306 million improvement in 2010 resulted from increased investment earnings and expense reductions, and lower realized losses, which were partially offset by increased deferred policy acquisition cost amortization. Realized capital investment losses from impairments decreased from $108 million in 2009 to $50 million in 2010. Interest coverage is considered low for 2010. Consolidated interest coverage by pretax operating earnings was below 1.0 times (x) and holding company interest and expense coverage by holding company cash and maximum statutory dividends was 1.9x. Fitch expects earnings and impairment trends to show continued improvement in 2011.

Fitch believes that PNX remains vulnerable to earnings disruption, particularly alternative investment income volatility and asset losses in the current stressed economic environment. Additionally new business generation is challenged and financial flexibility is limited.

Positively PNX's current total financings commitments ratio and financial leverage ratio are considered reasonable at 0.3x, and 25%, respectively.

The ratings also consider competitive challenges facing PNX as a mid-size life insurer competing against companies with much larger scale and capital resources. PNX's size can limit its ability to gain expense efficiencies and certain distribution relationships. Fitch has noted that PNX's sales declined between 2008-2010 due to some of the difficulties it faces but also recognizes PNX is attempting to compensate with new distribution relationships and product designs.

Key ratings drivers that could result in an upgrade include:

--Prolonged earnings improvement resulting in a sustainable GAAP ROE of 5% or greater;

--Sustained maximum statutory dividend and cash coverage of holding company interest and expenses above 3.0x;

--Sustained statutory capital generation resulting in an RBC position at or above current levels;

--Financial leverage below 25%.

The key rating drivers that could result in a downgrade include:

--An RBC position below 200%;

--Investment losses higher than anticipated, particularly within the structured portfolio;

--Financial leverage above 30%.

PNX is a life and annuity insurance holding company and ultimate parent of Phoenix Life Insurance Company and PHL Variable Insurance Company. It is headquartered in Hartford, Connecticut. PNX had $21.3 billion in GAAP assets and $1.1 billion in equity as of March 31, 2011, and reported a $6 million net loss for first quarter 2011 on a consolidated basis.

Fitch affirms the following ratings and revises the Outlook to Stable from Negative:

PHL Variable Life Insurance Company

Phoenix Life Insurance Company

--IFS at 'BB+'.

Fitch assigns the following ratings with a Stable Outlook:

Phoenix Life Insurance Company

--Issuer Default Rating at 'BB';

--Surplus note 7.15% due Dec. 2034 at 'B+'.

Phoenix Companies, Inc

--Issuer Default Rating at 'B';

Fitch withdraws the following ratings:

Phoenix Life and Annuity Company

AGL Life Assurance Company

--IFS at 'BB+'.

Additional information is available at 'www.fitchratings.com'.

The above ratings for Ameritas, First Ameritas, and Acacia have been initiated by Fitch as a service to investors. For all ratings the issuer did not participate in the rating process other than through the medium of its public disclosure.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (March 31, 2011);

--'Life Insurance Rating Methodology' (March 31, 2011);

--'Insurance Industry Global Notching Methodology and Recovery Analysis' (March 31, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266

Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905

Insurance Industry: Global Notching Methodology and Recovery Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265

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Contacts

Fitch Ratings
Primary Analyst:
Bruce E. Cox
Director
+1-312-606-2316
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60603
or
Secondary Analyst:
Cynthia J. Crosson
Director
+1-212-908-0863
or
Committee Chairperson:
James B. Auden
Managing Director
+1-312-368-3146
or
Media Relations:
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Bruce E. Cox
Director
+1-312-606-2316
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60603
or
Secondary Analyst:
Cynthia J. Crosson
Director
+1-212-908-0863
or
Committee Chairperson:
James B. Auden
Managing Director
+1-312-368-3146
or
Media Relations:
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com