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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 20, 2011 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" for AAA Life Insurance Company (AAA Life) (Livonia, MI) and its affiliated reinsurers. The outlook for all ratings is stable. (See below for a detailed listing of affiliated reinsurers.) The insurance group is collectively referred to here as AAA Life Group.
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 then reinsures these 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 auto 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 rating factors are AAA Life Group's exposure to interest sensitive liabilities, which represent two-thirds of reserves, limited surrender protection in its annuity lines and the increasing new business strain that includes the impact of Regulation XXX reserving, which has dampened the consolidated statutory earnings. While statutory results have included losses in recent years, the operating results have been consistently positive on a GAAP basis.
The FSR of A- (Excellent) and ICR of "a-" have been affirmed for AAA Life Insurance Company and its following affiliated reinsurers:
- Auto Club Life Insurance Company
- Auto Club of Southern California Life Insurance Company
- AAA Life Re, Ltd.
- Pacific Beacon Life Reassurance Inc
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Life & Health Insurers"; "Understanding Universal BCAR"; "Rating Members of Insurance Groups"; and "Assessing Country Risk." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.