The outlook has been revised to 'negative' from 'stable'.
"This rating action reflects the gradual but growing deterioration in the absolute and relative levels of Nationwide's capital adequacy that occurred throughout 2002 and in early 2003," said Standard & Poor's credit analyst Matthew Coyle. "Continued weakness in the U.S. equity markets was the major reason behind the decline, as the company has historically had a higher-than-average exposure to equities."
Notwithstanding these issues, the ratings continue to reflect Nationwide's strong franchise in the personal property/casualty (P/C) insurance sector and improving underwriting results. Partially offsetting these strengths is a weakened capital position caused by its above-average exposure to equities and the potential for adverse development of asbestos reserves.
The negative outlook reflects the weakened capital position of the organization, which Standard & Poor's believes is currently at the lower end of the indicated rating. The company's ability to restore the capital adequacy of the organization to a level that is more commensurate with the indicated rating will determine the necessity of further rating actions. If the company can successfully restore the capital adequacy of the organization while simultaneously improve underwriting results, the ratings would be affirmed and the outlook would be revised to stable. Conversely, the inability to improve both underwriting results and/or the capital adequacy of the organization could result in a downgrade of the rating.
Another consideration of the rating is the treatment of contingent surplus notes (CSN) in the assessment of the organization's capital adequacy. Currently, Standard & Poor's gives the company full credit for those funds on the expectation that those or replacement surplus notes will become a permanent part of the company's capital structure. Before the CSN facility expires in 2004 and 2005, Standard & Poor's, based on conversations with management, expects the company to take the necessary actions to make those notes or additional surplus notes a permanent part of its capital structure.
Nationwide is the fourth-largest writer of personal p/c insurance in the U.S. generating about $11.8 billion of net written premiums in 2002.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com under Fixed Income in the left navigation bar, select Credit Ratings Actions.