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Life Health > Life Insurance

Rating Agencies Ponder BMA Deal

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NU Online News Service, May 3, 4:51 p.m. – Just how sure is the future of Business Men’s Assurance Company of America, Kansas City, Mo., now that Royal Bank of Canada is acquiring it from Assicurazioni Generali S.p.A.?

The big rating agencies aren’t really sure.

The New York office of Standard & Poor’s has turned its thumbs down; the New York office of Moody’s Investors Service has turned its thumbs up; and the Chicago office of Fitch Ratings is keeping its thumbs to itself.

The huge, Toronto-based Royal Bank insists the proposed BMA acquisition is obviously a good move, both for it and BMA.

“The deal will expand our insurance and wealth management business in the U.S. and provide additional cross-selling opportunities for us,” says Beja Rodeck, a senior manager at Royal Bank’s RBC Financial Group unit.

Royal Bank announced earlier this week that it would pay the large, Trieste, Italy-based Generali group $220 million for half of BMA’s operations.

Generali would keep BMA’s reinsurance division, its Kansas City offices and its employees.

Royal Bank would get the BMA name; about 150,000 traditional life insurance policies and fixed and variable annuity contracts; and the capability of producing variable life products.

Royal Bank could add BMA to RBC Insurance, a unit that entered the U.S. market in November 2000 by paying $650 million to acquire Liberty Life Insurance Company and Liberty Insurance Services Corp. from Liberty Corp., Greenville, S.C.

Royal Bank would also get BMA’s mutual fund company, Jones & Babson Inc., Kansas City, Mo., which has about $1.5 billion in assets under management. Royal Bank would fold Jones & Babson into RBC Dain Rauscher, Minneapolis, a U.S. broker-dealer that Royal Bank bought in January 2001.

Standard & Poor’s has put BMA on “CreditWatch negative,” and lowered BMA’s counterparty credit and financial strength ratings to single-A, from double-A minus.

The proposed acquisition of BMA by Royal Bank “is well within the bank’s stated strategy of building out its U.S. platform,” Standard & Poor’s says in a ratings alert. “Standard & Poor’s expects BMA’s operations to become fully integrated with Royal Bank’s growing U.S. distribution capacity and infrastructure.”

But the previous rating incorporated implicit support from the Generali group, and now Standard & Poor’s is assessing BMA on a stand-alone basis, the firm says.

Moody’s on the other hand, has put BMA on review for a possible upgrade.

Moody’s gives an Aa3 rating to Generali’s senior unsecured debt and the same rating to Royal Bank’s senior unsecured debt. The key to BMA’s strength will be the level of support it can expect from Royal Bank, Moody’s says.

Moody’s predicts acquiring BMA will help Royal Bank by increasing the size of its U.S. insurance business.

Fitch gives Royal Bank’s long-term senior debt an AA rating, and it gives BMA an AA- insurance financial strength rating. The firm has put BMA on “Rating Watch Evolving.”

“The Rating Watch status primarily reflects uncertainty regarding BMA’s risk-adjusted capital position immediately following the close of the transaction,” Fitch says. “The transfer of the reinsurance business out of BMA will have a significant effect on both the capital profile and the business risk profile of the organization.”


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