FEBRUARY 26, 2014 04:08 PM (EST)
A.M. Best Upgrades Ratings of Life Insurance Company of Alabama
FOR IMMEDIATE RELEASE
OLDWICK - FEBRUARY 26, 2014 04:08 PM (EST)
The rating upgrades reflect LICOA's established niche market in its supplemental accident and health/life insurance segment, consistent earnings trends, robust risk-adjusted capitalization and improvement in its historically elevated risk profile.
LICOA is a small, closely held public company that offers supplemental insurance products to employer groups and individuals. In recent years, the company has reported consistently favorable operating results, despite some one-time items and unfavorable results in its unlimited cancer block of business.
The earnings have continued to bolster the company's risk-adjusted capitalization, which remains strong as measured by Best's Capital Adequacy Ratio (BCAR).
A.M. Best believes that LICOA has materially reduced its exposure in its unlimited cancer block. This is the result of the settlement of two class action lawsuits in late 2011--much of which had been previously reserved while in dispute--combined with the conversion of the majority of its unlimited cancer policies to limited benefit policies. A.M. Best will continue to monitor the impact that this block of business has on the company going forward, as well as the success of its premium rate increase strategy.
Offsetting rating factors include LICOA's flat premium revenue in recent years due to policyholder conversions from higher premium unlimited cancer policies to lower premium limited cancer policies, lower sales driven by local economic conditions and a mandatory one-year premium rate freeze in 2012 on parts of its cancer block. In addition, the company has business concentrations in the cancer insurance market and in four southeastern states.
A.M. Best notes the unlikelihood of upward rating movement in the near-to-medium term given LICOA's rating upgrades. Conversely, negative rating actions could occur if the company is unable to meet its modest growth projections, cannot achieve greater diversification of its revenue and earnings and/or material litigation/excessive claims arise in its remaining unlimited cancer business.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.