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On June 18, 2004, Standard & Poor's Ratings Services placed its 'A' counterparty
credit and financial strength ratings on Lafayette Life Insurance Co. (Lafayette
Life) on CreditWatch with positive implications following the announcement of the
proposed merger of its parent, Lafayette Life MIHC Inc., with Western-Southern Mutual
Holding Co.
The ratings on Lafayette Life reflect the company's extremely strong capital, very
strong liquidity, strong earnings, improving organic growth, diversified product
portfolio, and a reduction of investment risk. These strengths are slightly offset
by earnings challenges in the company’s group business.
The ratings on Western and Southern Life Insurance Co. (WSL; AAA/Negative/--) and
its subsidiaries are unchanged. The ratings reflect WSL's extremely strong capitalization,
consistently strong earnings, and conservative financial management. The outlook
reflects concerns about the ability to continue to produce superior profitable growth
in competitive markets, many of a commodity-like nature.
Lafayette Life will bring significant synergies with WSL subsidiary, Columbus Life
Insurance Co. The two companies have complementary product offerings in the high
net worth life insurance and annuity marketplace through independent agents. Product
and distribution synergies should bring the company significant scale benefits in
future years. The merger is not expected to have material effect on the capitalization
of the two firms and should improve the financial flexibility of the smaller Lafayette
Life.
The merger is expected to close around the end of 2004, at which time the ratings
on Lafayette are likely to be raised to within one or two notches of the ratings
on WSL. The final outcome will depend on the capital, earnings, and strategic plans,
which are not yet fully defined. Both groups are expected to maintain extremely
strong capitalization above industry average growth rates. Pretax GAAP ROAs are
expected to exceed 100 basis points for the full-year for both groups.
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