A.M. Best Upgrades Issuer Credit Ratings of Delphi Financial Group, Inc. and Its Subsidiaries

A.M. Best has upgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) to aa from aa- and affirmed the Financial Strength Rating of A+ (Superior) of the life/health subsidiaries, Reliance Standard Life Insurance Company (Schaumburg, IL) and First Reliance Standard Life Insurance Company (New York, NY) (together referred to as Reliance Standard), as well as the property/casualty subsidiaries, Safety National Casualty Corporation, Safety Specialty Insurance Company (both domiciled in St. Louis, MO) and Safety First Insurance Company (Chicago, IL) (together referred to as Safety National) of Delphi Financial Group, Inc. (DFG) (Wilmington, DE). DFG is a direct subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc. (Tokio Marine), Japans largest non-life insurance organization. The outlook of these Credit Ratings (ratings) is stable.

Concurrently, A.M. Best has upgraded the Long-Term ICR to a from a- and upgraded existing Long-Term Issue Credit Ratings (Long-Term IR) of DFG. Lastly, A.M. Best has upgraded the Long-Term IRs to aa from aa- on the outstanding medium term notes issued under the funding agreement backed-securities program of Reliance Standard Life Global Funding II. The outlook of these ratings is stable. (Please see below for a detailed list of the Long-Term IRs.)

The ratings of Reliance Standard reflect its balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, neutral business profile and very strong enterprise risk management (ERM).

The upgrade of Reliance Standards Long-Term ICRs primarily reflect the increased integration and strategic importance to its ultimate parent, Tokio Marine. In addition, the company continues to maintain a very strong level of risk-adjusted capitalization and generally favorable operating results, despite some spread compression within its interest-sensitive annuity business and increased morbidity in its group long-term disability and stop loss insurance segments. Reliance Standards operating results have been increasingly driven by a significant rise in investment income, which is attributable to a substantial increase in invested assets due to strong growth in its retirement services business. The ratings also consider Reliance Standards improved risk management capabilities, a reasonable level of financial and operating leverage and strong interest coverage ratios at its intermediate holding company, DFG.

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Partially offsetting these positive rating factors are the substantial decline in operating results over the past year within Reliance Standards core group long-term disability segment due to higher morbidity and an increase in reserves due to changes in actuarial assumptions. Reliance Standard also has experienced a general increase in higher risk and less liquid assets within its general account investment portfolio, including commercial mortgage loans, which currently represents approximately 200% of capital and surplus. The companys exposure to below-investment-grade bonds remain elevated at just under 100% of capital and surplus and 13% of invested assets, which is well-above industry averages. While the companys overall liability profile has shifted more toward interest-sensitive annuities, which A.M. Best views as a less creditworthy product line, interest rate spreads remain favorable despite some spread compression due to the low interest rate environment. A.M. Best expects Reliance Standards earnings to remain favorable over the near to medium term but may be pressured if interest rates remain at current levels.

The ratings of Safety National reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and very strong ERM.

The upgrade of Safety Nationals Long-Term ICRs recognize the companys consistently strong operating performance that exceeds peer companies, as well as industry results, across a wide range of operating metrics including operating ratio, return on revenue and return on equity. The results are supported by the balance sheet strength designed to provide capacity for long-tailed exposure. Further, Safety National has a long established leadership position within the excess workers compensation market. The ratings also consider the operational, financial and ERM support provided by the ultimate parent, Tokio Marine, and its lead insurance operating company, Tokio Marine & Nichido Fire Insurance Co., Ltd. These factors include day-to-day operational synergies across its U.S.-based subsidiaries, reinsurance support and economic capital modeling that is superior to peer companies.

The following Long-Term IRs have been upgraded:

Delphi Financial Group, Inc. — to a from a- on $250 million 7.875% senior unsecured notes, due 2020 — to bbb+ from bbb on $175 million fixed/floating rate junior subordinated debentures, due 2037

Reliance Standard Life Global Funding II to aa from aa- program rating — to aa from aa- on all outstanding notes issued under the program

This press release relates to Credit Ratings that have been published on A.M. Bests website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and A.M. Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

A.M. Best
Michael Adams
Senior Financial
Analyst—L/H

+1 908 439 2200, ext. 5133
[email protected]
or
Christopher
Sharkey

Manager, Public Relations
+1 908 439
2200, ext. 5159

[email protected]
or
Robert
Raber

Associate Director—P/C
+1 908 439 2200,
ext. 5696

[email protected]
or
Jim
Peavy

Director, Public Relations
+1 908 439
2200, ext. 5644

[email protected]

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