April 5, 2012 / 6:17 PM / 6 years ago

TEXT-S&P raises Phoenix Cos ratings

April 5 - Overview	
     -- We believe that Phoenix will have more than adequate resources to meet 	
its near-term obligations, including interest expenses on debt outstanding and 	
other operating expenses.	
     -- We raised the counterparty credit rating on holding company Phoenix 	
Cos. Inc. to 'B-' from 'CCC+' and affirmed the financial strength ratings on 	
subsidiaries at 'BB-'.	
     -- The outlook is stable, reflecting the group's improving financial 	
profile.	
	
Rating Action	
On April 5, 2012, Standard & Poor's Ratings Services raised its counterparty 	
credit rating (CCR) on The Phoenix Cos. Inc. (NYSE: PNX) to 'B-' from
'CCC+'. At the same time, Standard & Poor's has affirmed its financial strength 	
ratings (FSR) on subsidiaries Phoenix Life Insurance Co. (PLIC) and PHL 	
Variable Insurance Co. (collectively known as Phoenix) at 'BB-'. The outlook 	
on the ratings is stable.	
	
Rationale	
The upgrade reflects our belief that Phoenix has more than adequate resources 	
at the holding company to service its near-term obligations, including 	
interest expenses on debt outstanding and other operating expenses. The 	
holding company's interest expense for 2011 was $20.4 million and the holding 	
company has approximately $92.6 million of liquid resources, including $52.5 	
million of cash. The combination of cash and liquid assets at the holding 	
company should provide more than adequate resources to service debt in the 	
near term.  	
	
Moreover, Phoenix's statutory dividend capacity for 2012 is $72 million, 	
allowing the operating company to dividend additional funds to the holding 	
company without prior regulatory approval. Phoenix is domiciled in New York 	
and dividend capacity is calculated by taking the lesser of either 10% of 	
total capital and surplus, or net gains from operation. We expect Phoenix to 	
continue to produce positive statutory net gains from operations as a result 	
of its profitable and sizable regulatory closed block, though new sales strain 	
could partially offset earnings on the in-force business and gradually run-off 	
the closed block.	
	
Phoenix's National Association of Insurance Commissioners (NAIC) risk-based 	
capital (RBC) ratio of 363% is good, but our view of capital is diminished by 	
our view of double leverage, which includes unfunded pension benefit 	
obligations. Phoenix's generally accepted accounting principles (GAAP) fixed 	
charge coverage was 2.4x at year-end 2011, an improvement from 0.2x the 	
previous year. Statutory fixed charge coverage improved to about 3.3x in 2011 	
and we expect a similar level going forward. Debt leverage, including our 	
adjustment for unfunded post-employment obligations, was 33% at year-end 2011.	
	
Outlook	
The stable outlook reflects our view that Phoenix's financial profile is 	
stabilizing and incrementally improving, mainly because of improving operating 	
performance and the continuous strengthening of its capital base, as measured 	
by a regulatory RBC ratio of 363%. However, its business profile remains 	
marginal. In the short term, we expect Phoenix to be able to make all timely 	
payments on its obligations. In the longer term, we expect Phoenix's 	
repositioning strategy to be successful and to add new distribution 	
relationships that increase sales. 	
	
We expect Phoenix's GAAP operating performance to stay positive in 2012 	
through further expense reduction and increases in premiums and fees. With a 	
relatively small life insurance sales volume, but growing fixed annuities 	
volume in the short term and a large in-force block of business, we expect the 	
operating companies to continue to produce positive statutory income. This is 	
crucial because positive statutory earnings allow the operating companies to 	
dividend funds to the parent company without prior regulatory approvals. We 	
expect investment portfolio quality to continue improving and impairments to 	
continue declining.	
	
We could upgrade Phoenix if its operating performance and competitive position 	
continue to improve with adequate revenue generation to offset the decline in 	
premiums from the regulatory closed block, coupled with improved capital 	
adequacy based on Standard & Poor's capital model. Profitable growth, 	
particularly from open-block businesses with mid-single-digit returns on 	
capital, would support higher ratings, while sustainable sales growth and 	
increased distribution relationships would indicate an improved competitive 	
position.	
	
We could lower the ratings if, in our view, Phoenix Cos. Inc. faces 	
significant challenges in meeting its obligations on time. This could result 	
from a reduction in liquidity stemming from disintermediation risk or a lack 	
of contributions from the operating companies because of regulatory 	
restrictions. We would also consider lowering the rating if the company 	
consistently incurs a statutory loss.	
	
Related Criteria And Research	
Holding Company Analysis, June 11, 2009	
	
Ratings List	
Upgraded	
                                        To                 From	
Phoenix Cos. Inc.	
 Counterparty Credit Rating	
  Local Currency                        B-/Stable/--       CCC+/Stable/--	
 Senior Unsecured                       B-                 CCC+	
	
Ratings Affirmed	
	
PHL Variable Insurance Co.	
Phoenix Life Insurance Co.	
 Counterparty Credit Rating	
  Local Currency                        BB-/Stable/--      	
 Financial Strength Rating	
  Local Currency                        BB-/Stable/--      	
	
Phoenix Life Insurance Co.	
 Subordinated                           B                  	
	
	
 	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

Our Standards:The Thomson Reuters Trust Principles.
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