OREANDA-NEWS. S&P Global Ratings said today that it has lowered its long term counterparty credit rating on USAA Capital Corp. (CapCo) to 'AA' from 'AA+' due to our reassessment of CapCo's role in United Services Automobile Assn.'s (USAA) organizational structure. We also affirmed our short-term counterparty credit and commercial paper (CP) ratings on CapCo at 'A-1+.' On July 15, 2016, we affirmed our 'AA+' long-term counterparty credit and financial strength ratings on USAA and its core operating subsidiaries (collectively, USAA). The outlook on all ratings is stable.

"The rating action is based on our reassessment of CapCo's role in USAA's organizational structure and its profile as a nonoperating holding company that does not conduct business activities directly, as opposed to an operating holding entity," said S&P Global Ratings credit analyst Patricia Kwan. "Consequently, we downgraded CapCo by one notch. We are affirming our short-term credit and CP ratings based on CapCo's adequate liquidity and the group's exceptional liquidity level."

Our rating on CapCo is one notch lower than that on the USAA operating company rather than the standard three notches for a predominantly U. S. insurance group. This treatment recognizes the significant earning contributions from USAA's banking operations to the group and our informed view that a common regulator (the Federal Reserve) for the group supports capital fungibility among the holding company and the banking and insurance subsidiaries and would likely coordinate efforts in a stress scenario to oversee USAA's solvency. Subsequent to the enactment of the Dodd Frank Act, USAA became subject to regulation by the Board of Governors of the Federal Reserve System as an "insurance savings and loan holding company." The one-notch differential also reflects our revised view that the obligations of CapCo are junior to those of the USAA policyholder claims.

"The stable outlook reflects our view that USAA's competitive position and capital adequacy will remain extremely strong," Ms. Kwan continued. "We expect USAA to maintain operating performance consistent with our base case."

We might lower the ratings if, contrary to our expectations, we perceive that changes to USAA's business or financial risk profiles could deteriorate for a prolonged period.

"We are unlikely to raise our ratings in the next 24 months as our criteria constrain ratings on the intermediate industry and country risk assessment on the P/C sector and on domestic insurance operating and holding companies rating to the local-currency sovereign credit rating on the U. S.," Ms. Kwan added.