With the close of Safeco Corp.s sale of its life operations to White Mountains Insurance Group, Ltd., analysts say that potential improvement of the units capital formation is one major benefit.
However, offsetting the benefits of new ownership, they add, are potential risks inherent in the business lines of Safeco Life Insurance Company, including its structured settlement business, group stop-loss business and asset management operations.
On Aug. 2, the sale of Seattle-based Safecos life operations was completed for $1.51 billion. The name of the life operations under new ownership will be changed to Symetra Financial on Sept. 1.
Analysts noted that private ownership could help Safeco Life improve its financial performance. Cash dividends that had been passed up to the parent could be deployed for capital formation, says Laura Bazer, an analyst with Moodys Investors Service, New York.
In the rating agencys confirmation of Safeco Lifes A2 financial strength rating, Moodys noted that “private ownership, although possibly not long term in tenure, should afford Safeco Life the time to improve its financial performance without the pressures of full public ownership.”
Among the risks associated with the life operations product lines, according to Moodys, is the risk of spread compression on its structured settlement and fixed annuity portfolios, its “sizeable exposure” to the group stop-loss business, and the credit-sensitive nature of its BOLI business.
In fact, in Safecos first-quarter 2004 report, it states that product lines including its structured settlement annuity business are “extremely sensitive” to financial strength ratings.
Kevin Maher, an analyst with Standard & Poors Corp., New York, also cites the ability to use retained earnings to build the company rather than pay out dividends to the parent. S&P revised its outlook on the life operations of the company to positive from stable.