S&P Global Ratings' review of the 12 global multiline insurers that we rate under our recently revised criteria has yielded several credit insights, though did not lead to changes to ratings or outlooks. (We did upgrade U.K.-based Aviva, but for reasons related to underlying credit improvements at the company and our future expectations for the business.) All in all, we see less pressure on the ratings on the global multiline insurers (GMI) given their robust risk management. In response to the long period of low interest rates, GMIs have pursued transactions to reduce earnings and balance sheet volatility, altered their portfolios to emphasize stable products, and focused on underwriting profitability. Size is important but not the be all and end all. GMIs are unapologetically reshuffling their business mix and exiting geographic markets where they may not meet their return on capital targets. However, it might be premature to say we see a positive trend. Indeed, weaker global economic conditions are on the horizon, interest rates remain historically low, and political tensions are on the rise.

The reason why we revised the criteria was to improve the clarity and transparency of the key rating drivers, remove mechanistic caps, and further global alignment--with increased scope for peer analysis to differentiate creditworthiness among insurers. It was not meant to radically change how we assess creditworthiness. The operating units of the top 12 GMI we rate continue to have high ratings--ranging from 'AA' (17% or 2), 'AA-' (58% or 7) or 'A+' (25% or 3). The vast majority of the outlooks on the insurers remained stable following application of our criteria, with one outlook remaining negative (Aegon) and another outlook staying positive (Tokio Marine).

The GMIs comprise the most diverse insurance businesses globally, showing the strongest diversification by product and region. This is well reflected in competitive position scores that range from "very strong" to "excellent" (see tables 1-3 below for these scores and other ratings components on the top 12 GMI). Yet, breadth of products on a global scale itself is not enough of a differentiator. We believe consistent and strong earnings are paramount to maintaining competitive strength. Peer analysis is an important component of our ratings including in situations where we find relative degrees of strengths or weaknesses in the business and financial profiles of insurers (see the notes to tables 1-3). Chubb is the only GMI whose anchor is a singular outcome and doesn't straddle categories, though it is worthwhile mentioning that the insurer outperforms its peer group with respect to operating earnings and capital strength.

Our view of the financial risk profiles of GMIs ranges mostly from "strong" to "very strong," with Chubb at "excellent," supported by capital redundancy at the 'AAA' confidence level. Capital adequacy for the GMIs reflects on average relatively superior capitalization and more diversified earnings streams than their less diversified competitors. We also generally believe the GMIs have strong capabilities to manage risk exposures. As part of our analysis of their financial risk profiles, we assess GMIs' risk exposures to be "moderately low," except AIG's "moderately high" assessment stemming from exposure to volatility from adverse reserve development, particularly in its U.S. long-tail lines of business, that is somewhat offset by strategically higher use of reinsurance.

Most Of The Outlooks Are Stable

We see a balanced distribution of outlooks for the 12-largest GMIs: Most of them are stable, with one negative (Aegon) and one positive (Tokio Marine).

GMIs have reinvented themselves over the last few years to overcome higher capital requirements, market volatility, and competitive conditions, supporting the stable outlooks for the majority of this portfolio. We have seen significant balance sheet restructuring activities, shifts in product focus, the strategic use of reinsurance, and underwriting remediation efforts. Below are a few examples.

AXA's acquisition of XL Insurance and its ongoing sale of U.S. subsidiary AXA Equitable Holdings are helping the group shift its exposure to insurance underwriting risk from financial risk, in line with its strategy. Replacing U.S. life and asset management with XL also downsized AXA's total balance sheet by over €100 billion, which resulted in lower capital requirements.

MetLife's spin-off of Brighthouse Financial, its U.S. retail business, has improved its quality of earnings with lower reported net derivative gains or losses. Nevertheless, not all of Metlife's legacy risk went out the door with Brighthouse. It still has exposure to long-dated, complex liabilities like long-term care, variable annuities with guaranteed living benefit riders, and universal life with secondary guarantees. MET continues to hold a leading position in the U.S. group life insurance market and has a strong international footprint, especially in Japan and Latin America.

Prudential PLC announced a group restructuring in 2018, aiming to split its U.K. operations and European operations from the remainder of the international operations, consisting primarily of Jackson National Life Insurance in the U.S. and Prudential Corporation Asia. We believe this move is not linked to Brexit, but mainly reflecting different life insurance trends in the U.K. than in the U.S. and Asia. A risk of a disruptive no-deal Brexit could potentially impact asset prices in the U.K.

AIG has reinvented itself as a newly rational property/casualty insurer and has aggressively been pushing for rate increases under its redefined underwriting appetite, particularly within its Lexington platform in the U.S. excess & surplus casualty market. It also has placed greater emphasis on reinsurance to contain volatility, notably through its landmark deal for Berkshire to provide adverse development cover. Plus, AIG has undertaken some reconstruction of its balance sheet through the creation of Fortitude Re for its life legacy business, in which it maintains a controlling stake. We view this transaction as credit neutral because we assess capital on an enterprise level.

We recently raised the ratings on Aviva to 'AA-' from 'A+', following improved balance sheet resilience and capital allocation discipline. We observed improved capital buffers alongside better prospective operating profitability, despite the inherent risks of a disruptive Brexit. We note that Aviva has been reducing leverage and has publically committed to further reductions in this regard, which we view positively.

Ratings Components For Global Multiline Insurers

Table 1

Table 2

Table 3

The ratings information in tables 1-3 relates to the core operating entities of each group when the parent entity is a holding company. This presentation makes the comparisons among insurance groups more consistent because our credit analysis focuses on the consolidated group. Depending on the jurisdiction, we typically rate insurance holding companies two to three notches lower than the group credit profile (GCP), taking into account the degree of structural subordination within insurance groups.

The tables show the anchors, governance, liquidity, and comparative rating analysis (CRA) modifiers and sovereign risk, if any, for each group. Of the 12 GMIs, we assign a CRA only to Prudential PLC (one notch down) to reflect prospectively weaker diversification following the proposed changes to its group structure, as Prudential PLC will no longer write insurance in Europe, as well as some, albeit reducing, execution risk of the transaction. We apply a sovereign risk cap to Tokio Marine, limiting its rating to 'A+' with a positive outlook currently. The cap is reflecting Tokio Marine's exposure with majority in its domestic insurance market as well domestic invested assets despite the group's progress in diversification.

Related Criteria And Research

• Insurance Rating Methodology, July 1, 2019
• Group Rating Methodology, July 1, 2019