A.M. Best Downgrades Ratings of The Phoenix Companies, Inc. and Its Subsidiaries
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength ratings (FSR) to B (Fair) from B+ (Good) and issuer credit ratings (ICR) to "bb+" from "bbb-" of the subsidiaries of The Phoenix Companies, Inc. (Phoenix) (NYS: PNX) . Concurrently, A.M. Best has downgraded the ICR and senior debt rating to "b" from "b+" of Phoenix. Additionally, A.M. Best has downgraded the debt rating to "bb-" from "bb" of the existing surplus notes of Phoenix Life Insurance Company. The FSRs have been removed from under review with negative implications and assigned a stable outlook, andthe ICRs have been removed from under review with negative implications and assigned a negative outlook. All companies are headquartered in Hartford, CT. (Please see below for a detailed listing of the companies and ratings.)
The rating downgrades follow Phoenix's recent announcement of its second quarter statutory results and estimated operating metrics as well as the continued delay in the filing of its audited GAAP and statutory statements. Due to its stated complexity and expanded scope, the restatement process has been extended beyond A.M. Best's original expectations. A.M. Best has become concerned with the increased potential for material and adverse adjustments to be reported during the course of the restatement process, and the ultimate impact on Phoenix's reported GAAP and statutory results. In addition, while Phoenix has provided quarterly unaudited statutory results for its life subsidiaries since the restatement period began, the organization is currently unable to provide year-end 2012 audited statutory results due to the delay of its GAAP filings. Although statutory capital and surplus had been steadily increasing through year-end 2012, the operating subsidiaries have reported a sizeable decline in capital and surplus in 2013, due to a dividend payment to the holding company, negative net prior year adjustments to surplus and a tax payment to the holding company as a result of interest rate hedges instituted in the life companies earlier this year. A.M. Best notes that in addition to the unfavorable financial impacts related to the restatement process, Phoenix has acknowledged that its management believes it has identified multiple material weaknesses in its accounting controls, which A.M. Best views as an ongoing distraction and evidence of the need for a more robust risk management process.
Positive rating actions may occur upon the filing of up-to-date audited GAAP and statutory filings if the errors identified in the aggregate are not materially adverse with respect to the group's capitalization. Additionally, A.M. Best would need to be comfortable that any and all identified material control weaknesses in accounting or operations have been remediated. Conversely, if A.M. Best notes uneven or poor trends in earnings, sales, risk-adjusted capital or investment portfolio losses, negative rating actions are probable. Negative rating actions also may result if materially adverse adjustments to the financial statements are ultimately reported.
The FSRs have been downgraded to B (Fair) from B+ (Good) and the ICRs to "bb+" from "bbb-" for the following subsidiaries of The Phoenix Companies, Inc.:
Phoenix Life Insurance Company
PHL Variable Insurance Company
Phoenix Life and Annuity Company
American Phoenix Life and Reassurance Company
The following debt ratings have been downgraded:
The Phoenix Companies, Inc.—
-- to "b" from "b+" on $300 million 7.45% senior unsecured notes, due 2032 ($253 million outstanding)
Phoenix Life Insurance Company—
-- to "bb-" from "bb" on $175 million 7.15% surplus notes, due 2034 ($126 million outstanding)
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visitwww.ambest.com.
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A.M. Best Co.
Kate Steffanelli, 908-439-2200, ext. 5063
Senior Financial Analyst
Ken Johnson, CFA, 908-439-2200, ext. 5056
Managing Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy,908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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