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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 24, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of Midland National Life Insurance Company (Midland National) and North American Company for Life and Health Insurance (North American) (both domiciled in Des Moines, IA). Midland National and North American are the key life/health insurance subsidiaries of Sammons Enterprises, Inc. (SEI) and are jointly referred to as the Sammons Financial Group (SFG). The outlook for all ratings is stable.
The rating actions reflect the continuation of SFG’s favorable sales trends, positive net flows and overall strong operating performance. In addition, the solid investment returns generated from a higher allocation of structured fixed-income securities has enabled the group to maintain healthy interest spreads. The ratings also recognize SFG’s sound capitalization and targeted distribution strategy, which has facilitated organic growth. In 2011, SFG established a new business line, Sammons Retirement Solutions, which will look to distribute retirement-oriented products such as mutual funds and variable annuities through broker-dealers and their financial advisors. SFG’s ratings reflect its strong business profile as a leading producer of fixed-indexed annuities (FIA), its effective FIA hedging program and the benefits of SEI’s unique ownership structure through an Employee Stock Ownership Plan Trust.
Partially offsetting these positive rating factors are the challenges SFG faces in further diversifying its operating profile in the competitive U.S. life insurance market and managing its interest-sensitive liabilities through the ongoing low interest rate environment. SFG continues to work on expanding its distribution platform and further product refinements to provide more balance in its results. Additionally, there is the potential for impairments given moderately higher allocations to riskier assets. The investment portfolio is weighted towards structured investments and a growing percentage of private placements, which increase risk and negatively impact liquidity. However, through the active management of portfolio manager Guggenheim Partners Asset Management, LLC (an affiliated company), SFG has consistently generated above-average returns, which have benefited product margins despite low interest rates. A.M. Best notes that these returns come with somewhat increased risk, lower liquidity and the potential for higher credit impairments. Capitalization remains sound and continues to be supported by both organic earnings and increased utilization of reinsurance transactions.
A.M. Best believes that SFG is well positioned at its current ratings. Factors that could have a negative impact on the outlook and/or ratings include increased impairments from additional investment risk, a material decline in risk-adjusted capital or a change in business profile that would increase exposure to interest-sensitive product lines.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; “A.M. Best’s Liquidity Model for U.S. Life Insurers”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology 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.