Press Release - AUGUST 04, 2017
A.M. Best Upgrades Issuer Credit Rating of Great Western Insurance Company
FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 04, 2017
The rating upgrade of the Long-Term ICR reflects GWIC’s well-established niche position as a pre-need life insurance company, adequate level of risk-adjusted capitalization, favorable investment portfolio yield and generally positive operating trends. Partially offsetting rating factors are a historically limited business profile coupled with higher levels of investment risk relative to capital, and lack of historical experience in its relatively new business segment of group annuity funding agreements (GAFA).
GWIC is a prominent insurer in the pre-need space through its extensive funeral home distribution network targeting the growing senior population. GWIC continues to report positive operating earnings, which historically have benefited from an effective underwriting process and prudent expense management. Recent income volatility is due mostly to new business strain from the final expense block of business. Growth in invested assets from the GAFA product, which is a funding vehicle for high deductible health savings accounts, contributes to healthy investment spreads, which A.M. Best expects will continue to increase the diversification of the company’s earnings and expand its business profile.
Historically, GWIC’s business profile has been modest with limited geographical diversification and an exclusive reliance on pre-need insurance products; however, GWIC is expanding geographically and adding a final expense product to its product portfolio. A.M. Best notes that the GAFA product is relatively new, and its performance will need to season over time given the potential for investment risk, liquidity, and asset and liability management risk in managing this product line, which is only in its third year of operations. Liquidity risk is offset partially by maintenance of an external bank credit line and access to a Federal Home Loan Bank lending program along with dedicated cash funds set aside for the GAFA product; however, credit risk remains a concern but is mitigated partially by favorable liquidity ratios and the shorter duration of assets supporting the GAFA product with less than one-year duration mismatch. This risk also is mitigated by a surrender charge, embedded in the GAFA product. Finally, A.M. Best notes there is a trend of higher levels of investment risk in the portfolio along with a high percentage of mortgage loans, which are concentrated in the funeral industry.
Key rating factors that could lead toward a negative rating action include negative premiums and earnings trends leading to a material decline in risk-adjusted capital, or if A.M. Best believes excessive credit risk or liquidity risk is taken in spread-based business segments that could lead toward a material decline in risk-adjusted capital.
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