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S&P Upgrades Harleysville Outlook After Nationwide Deal

Posted on 03 Oct 2011

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Standard & Poor's Ratings Services on Friday affirmed its investment grade ratings on Harleysville Mutual Insurance Co. and its units and revised its outlook upward, following the deal reached by the insurer's parent company to sell itself to Nationwide Mutual Insurance Co.

Harleysville Group Inc. said on Thursday it will sell itself to Columbus, Ohio-based Nationwide for $760 million in cash. The deal is expected to close early next year, subject to shareholder and regulatory approvals.

S&P affirmed its "A-" counterparty credit and financial strength ratings on Harleysville's various subsidiaries and its counterparty credit rating on Harleysville Group.

The agency revised the outlook on all these ratings to "Positive" from "Stable."

S&P said Harleysville continues to have a strong competitive position in the Northeast and Mid-Atlantic regions, and had very strong capital adequacy and conservative financial leverage as of June 30. The company's operating performance "significantly deteriorated in the first half of 2011," the agency said, due to high catastrophe losses from a spate of storms.

The positive outlook is based on S&P's expectation that it will raise boost the ratings on Harleysville subsidiaries after the buyout is complete.

If the deal falls through, S&P said it would likely affirm all the ratings and revise the outlook to stable, all else being equal.

"We believe Harleysville will maintain a strong competitive position and very strong capital adequacy for the next six to 12 months," S&P said. The company will likely have an operating loss for the year, based on its first six months plus expected catastrophe losses for the third quarter. Net investment income should remain strong but will not be enough to offset the underwriting losses, S&P said.