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AM Best Affirms Credit Ratings of United Services Automobile Association, Its Subsidiaries and USAA Capital Corporation

AM Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aaa” of United Services Automobile Association (USAA) and its property/casualty (P/C) and life/health (L/H) subsidiaries. Concurrently, AM Best has affirmed the Long-Term ICR and the Long-Term Issue Credit Rating (Long-Term IR) of “aaa” on the medium-term note program and the senior unsecured medium-term notes of USAA Capital Corporation. The outlook of these Credit Ratings (ratings) remain stable. In addition, AM Best has affirmed the Short-Term Issue Credit Rating (Short-Term IR) of AMB-1+ on the commercial paper program of USAA Capital Corporation. All companies are domiciled in San Antonio, TX, unless otherwise specified. (See below for a detailed listing of the companies and ratings.)

The ratings reflect USAA’s balance sheet strength, which AM Best categorizes as strongest, as well as its very strong operating performance, very favorable business profile and very strong enterprise risk management (ERM).

USAA maintains diversified sources of earnings, providing a full range of financial products and services to its membership of military and ex-military personnel and their dependents. USAA’s low cost structure, high customer retention level, effective use of technology and exceptional customer service capabilities have enabled the group to achieve a sustainable competitive advantage in the personal lines sector. As a result of these strengths, USAA has built a sizeable market position, especially in the P/C segment, as the nation’s fifth-largest private passenger auto and fourth-largest homeowners’ policy provider, based on AM Best industry direct premium data. In addition, USAA maintains a relatively conservative investment strategy, which has enabled it to experience favorable investment returns even during times of significant market turmoil and record low interest rates. As part of its ERM strategy, USAA has developed strong catastrophe management and a sound reinsurance program that has preserved the capital and financial security of its membership through years of significant catastrophe activity, particularly in 2016-2018. USAA also has implemented a series of initiatives to address the rise in frequency and severity of claims in the personal auto lines of business, which has led to notable improvement in auto results over the past three years.

Modestly offsetting these positive rating factors is USAA’s exposure to frequent and severe weather-related events. This exposure was demonstrated in 2016-2018, as USAA experienced some of its worst catastrophe loss years in its history for losses and claim counts. In 2016, results were impacted by a series of hail storms in Texas and Colorado. In 2017 and 2018, hurricanes Harvey, Irma and Michael, as well as significant wildfires in California, impacted results each year. In addition, while recent improvement has been noted, the previously referenced unfavorable frequency and severity trends of automobile losses due to macroeconomic factors have pressured USAA’s loss ratio.

The ratings of USAA Life Insurance Company and its subsidiary, USAA Life Insurance Company of New York (Highland Falls, NY), together referred to as USAA Life, reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and very strong ERM. The ratings reflect not only the financial strength of USAA, it also considers the depth and strong persistency of business generated from the company’s association with its military affinity group.

Risks to the insurance operations consist of challenges related to earnings and reserves associated with a diverse mix of business, which includes ordinary life insurance, annuity and accident and health segments. Additional embedded risks include maintaining appropriate spreads related to the annuity block of business in a low interest rate environment along with the growth in ordinary life sales, which is challenging for the broader life industry segment.

The FSR of A++ (Superior) and the Long-Term ICRs of “aaa” have been affirmed with a stable outlook for United Services Automobile Association and its following P/C and L/H subsidiaries:

  • USAA Casualty Insurance Company
  • USAA General Indemnity Company
  • USAA Limited
  • USAA County Mutual Insurance Company
  • USAA Life Insurance Company
  • USAA Life Insurance Company of New York

The following Long-Term IR has been assigned with a stable outlook:

USAA Capital Corporation—
-- “aaa” on $400 million 2.625% senior unsecured medium-term notes, due 2021

The following indicative Long-Term IR under the universal shelf registration has been affirmed with a stable outlook:

USAA Capital Corporation—
-- “aaa” on the senior unsecured medium-term note program

The following Long-Term IRs have been affirmed with stable outlooks:

USAA Capital Corporation—
-- “aaa” on $400 million 3.000% senior unsecured medium-term notes, due 2020
-- “aaa” on $400 million 2.450% senior unsecured medium-term notes, due 2020
-- “aaa” on $400 million 2.000% senior unsecured medium-term notes, due 2021

The following Short-Term IR has been affirmed:

USAA Capital Corporation—
-- AMB-1+ on the commercial paper program

This press release relates to Credit Ratings that have been published on AM Best’s 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts:

Robert Valenta, CPCU
Senior Financial Analyst – P/C
+1 908 439 2200, ext. 5291
robert.valenta@ambest.com

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