A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Superior) and issuer credit ratings (ICR) of "aa-" for the key life insurance entities of ING Groep N.V.'s (ING) (Netherlands) [NYSE: ING] U.S. operations, ING USA (Atlanta, GA).
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Concurrently, A.M. Best has affirmed the debt ratings of "aa-" on the two funding agreement-backed securities programs sponsored by ING USA and the notes issued thereunder. The outlook for all ratings is stable. (See below for a detailed listing of companies and ratings.)

 

The affirmation of ING USA's ratings reflects its positive sales trends across core lines, particularly in wealth management; sophisticated enterprise risk management practices; and stable capitalization levels, which have benefited from organic earnings growth and parental support. The group's operating profile is well-diversified and generates sustainable earnings and cash flows across its key businesses. ING USA has developed a strong U.S. franchise, with well-established market positions in retirement services and retail annuities, as well as a strong presence in life insurance and institutional markets. A.M. Best notes that ING USA is strategically well-positioned to benefit from the higher growth segments of the maturing U.S. market, namely retirement services and selected asset accumulation and payout products. Moreover, the group may benefit from potential consolidation activity with the 403(b) market due to the impact of the new regulations.

 

These strengths are tempered by a capital structure that remains heavily supported by internal loans from the group's Dutch parent, an operating profile that is highly sensitive to equity market volatility, and above-average exposure to structured investments. Additionally, ING USA's market share within individual life insurance and mutual funds has moderated in recent years, and the group faces heightened competition within the retirement services market. However, ING USA's life insurance sales improved significantly during the last year due to the introduction of new products, particularly term life. A.M Best notes that growth in assets under management has been tempered in the last two quarters by the decline in the U.S. equity markets, though net flows within the group's retirement services 401(k) and variable annuity segments were positive.

 

The general account portfolios of ING USA's major life subsidiaries have high concentrations of structured securities, including significant exposure to subprime and Alt-A residential mortgages—roughly $9 billion, which is over 100% of consolidated statutory capital. In addition, ING has moderate exposure to commercial mortgage-backed securities (CMBS). A.M. Best believes CMBS may experience elevated defaults in response to declining residential real estate values and a recessionary U.S. economic climate. Operating leverage remains within acceptable limits for the current ratings, though it is likely to increase going forward through growth in Federal Home Loan Bank funding agreement programs. Finally, A.M. Best notes potential reduction in financial flexibility should ING USA have to recapture and fund reserves previously reinsured to Scottish Re Group Limited.

 

The FSR of A (Superior) and ICRs of "aa-" have been affirmed for the following ING USA entities:

 

-- ING Life Insurance and Annuity Company
-- ING USA Annuity and Life Insurance Company
-- ReliaStar Life Insurance Company
-- ReliaStar Life Insurance Company of New York
-- Security Life of Denver Insurance Company

 

The FSR of A (Excellent) and ICR of "a" have been affirmed for ING USA's non group-rated entity, Midwestern United Life Insurance Company.

 

The following debt ratings have been affirmed:

 

ING USA Global Funding Trusts — "aa-" program rating


-- "aa-" on all outstanding notes issued under the program

ING Security Life Institutional Funding — "aa-" program rating


-- "aa-" on all outstanding notes issued under the program