S&P Global Ratings cut ProgressiveCorp.'s debt ratings as part of a transition of the insurer to a "standard"notching system.
The ratings agency said it will now evaluate Progressive basedon an approach that applies a three-notch differential between its rating of operatinginsurance subsidiaries and holding companies for U.S.-based insurance groups. Thechange is a consequence of the Ohio-based company's capital management strategyof keeping excess funds at the holding company while maintaining a "lean capitalbase" at its operating companies.
"The reason for the change to standard notching is thateven though the ultimate holding company has significant unregulated cash and investedassets, we view these funds as supporting capital adequacy at its operating insurancesubsidiaries," S&P Global Ratings said. The rating agency further saidthat Progressive's "relative lack of diversity of regulatory domiciles"and its earnings stream does not support nonstandard notching.
S&P Global Ratings previously subjected Progressive to anonstandard two-notch differential.
The change resulted in a downgrade of the insurer's long-termcounterparty credit and senior unsecured debt ratings to A, from A+. The ratingsagency also affirmed the AA financial strength and long-term counterparty creditratings for Progressive's core operating insurance companies. The outlook is stable.
S&P Global Ratings is unlikely to raise its ratings on thecompany over the next two years because of Progressive's narrow focus on auto insurance,it said, but could lower its ratings if the company's competitive position weakenssignificantly.
S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.