Fitch Ratings has maintained ING Verzekeringen’s (ING V’s) U.S. life insurance subsidiaries (ING US) rating watch status as Evolving on the heels of a December 7 announcement that the Dutch company will take a $1.1 billion fourth quarter charge on its closed block variable annuity business.
The anticipated charge, after an analysis of policyholder behavior and assumptions for variable annuities sold between 2003 and 2009 pertaining to lapse, mortality and annuitization rates renders a reserve adequacy on their variable annuity business at a 50% confidence level on an IFRS basis.
The overall outlook looks unfavorable for the Dutch insurance lion because funding from the company itself is viewed as a weaker form of capital than a flat out cash contribution and it intensifies the company’s single-issuer credit exposure.
The ratings agency expects statutory risk adjusted capital to decline from 492% to 425% with the reserve increase, and it foresees additional charges as the ING US’s book of business matures.
The ratings classification of Evolving is derived from doubt over ING US’s capital profile, operating performance and ownership concerns. In an agreement with the European Commision, ING will divest its global insurance operations by the end of 2013 through an expected IPO in the second quarter of 2012.