Press Release - MAY 30, 2014

A.M. Best Affirms Ratings of AAA Life Insurance Company and Its Affiliated Reinsurers


CONTACTS:
 
Marisa Bernardes
Financial Analyst
(908) 439-2200, ext. 5802
marisa.bernardes@ambest.com

Raj Shah
Assistant Vice President
(908) 439-2200, ext. 5409
raj.shah@ambest.com


Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - MAY 30, 2014
A.M. Best has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" of AAA Life Insurance Company (AAA Life) (Livonia, MI) and its affiliated reinsurers. The insurance group is collectively referred to as the AAA Life Group. The outlook for all ratings is stable. (See below for a detailed listing of affiliated reinsurers.)

The ratings reflect AAA Life Group's favorable business profile, which is enhanced by the strong brand name recognition of the American Automobile Association, the financial flexibility and capital support from higher rated property/casualty parents provided to the designated reinsurers, strong risk-adjusted capitalization and increasing ordinary life premiums over the past five years.

AAA Life writes all new insurance business and reinsures premiums on a quota share basis to designated reinsurance members of AAA Life Group, as contracted by shareholder and management agreements. AAA Life manages the full administration, investment and insurance operations of all affiliated reinsurers. As such, A.M. Best considers that all members of AAA Life Group operate as a group. However, due to the nature of the existing ownership structure and business arrangement, AAA Life does not have a majority ownership nor does it retain board control of the reinsurance members of the AAA Life Group. A.M. Best deviated from its "Rating Members of Insurance Groups" methodology by providing the reinsurers of AAA Life Group with rating enhancement from AAA Life. As prescribed by the methodology, to be eligible for rating enhancement, an individual company must have a parent with majority ownership, operate under common ownership with the entity providing lift or maintain board control together with common management. In this case, while there is some common management within the group, the respective reinsurance company boards are independent of AAA Life and lack common ownership among the group members.

AAA Life Group benefits from the substantial capital resources available from its higher rated property/casualty parents, access to their large automobile club member base, diversified distribution and financial resources. The group's risk-adjusted capital position is more than sufficient to support its business, investment and insurance risks. As a result of its direct mailing efforts and diversified product offerings, AAA Life's ordinary life premiums have trended upwards in recent years.

Partially offsetting these positive rating factors are the impact of the new business strain, which includes the impact of Regulation XXX reserving on statutory earnings, AAA Life's ongoing exposure to interest-sensitive liabilities associated with the fixed annuity block of business and high below investment grade holdings compared to the industry average. While statutory results have included losses in recent years, the operating results have been consistently positive on a GAAP basis.

While all key financial metrics are reflected in the current ratings, key factors that could result in negative rating actions include a material decline in risk-adjusted capitalization due to statutory operating and investment losses, any change in the degree of support from the current stockholders of various reinsurance companies and a significant increase in interest-sensitive liabilities.

The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for AAA Life Insurance Company and its following affiliated reinsurers:

o Auto Club Life Insurance Company

o Automobile Club of Southern California Life Insurance Company

o AAA Life Re, Ltd.

o Pacific Beacon Life Reassurance Inc

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.


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