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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 17, 2013 12:00 AM (EDT)
A.M. Best Co. has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of B++ (Good) of Illinois Mutual Life Insurance Company (Illinois Mutual) (Peoria, IL). The outlook for both ratings is stable.
The rating actions reflect Illinois Mutual’s sound and improving risk-adjusted capitalization driven by increasing levels of surplus and the continuing benefits derived from its asset de-risking strategies implemented several years ago in conjunction with its outside asset manager. The rating actions also recognize Illinois Mutual’s solid—albeit fluctuating—overall net operating performance derived primarily from its core disability income segment, which has experienced favorable morbidity trends. The company’s closed block of fixed annuities also has contributed to earnings due to favorable persistency and active spread management. Illinois Mutual’s profitability has been further enhanced by management’s focus on operational efficiencies.
Additionally, the ratings reflect Illinois Mutual’s somewhat diverse business profile, marketing both its core individual disability income and traditional forms of ordinary life products primarily to the middle income market through multiple distributional channels. In 2010, the company voluntarily ceased writing new individual annuity business; however, it continues to administer its existing policies. Illinois Mutual has achieved new sales growth in both its core product segments; although, A.M. Best notes that in recent years the company’s sales have been dampened somewhat by the general conditions of the economy and restructuring strategies within its distribution channels. More recently, the organization has implemented several new marketing strategies, recruited additional distribution and began a multi-year technology enhancement project to support its business needs.
As a mutual life insurance company, Illinois Mutual is limited in its access to capital and relies heavily on retained earnings to increase surplus and fund its growth initiatives. A.M. Best believes the company may be challenged to sustain and improve its earnings as the combination of expense strains associated with anticipated new business growth, the continuing challenges of the persistent low interest rate environment (especially on the company’s interest-sensitive liabilities and investments), and costs related to technology enhancement strategies. Moreover, the impact of recently adopted statutory accounting practices related to pensions and other post-retirement benefits could dampen surplus growth. Illinois Mutual also faces the challenges of disintermediation risk within its fixed annuity segment in a rising interest rate environment.
Key rating factors that could lead to further positive rating actions for Illinois Mutual include steady growth in capital, net operating performance that exceeds A.M. Best’s expectations and meaningful top-line growth in its core ordinary life segment. Key rating factors that could lead to negative rating actions include a significant and sustained decline in risk-adjusted capitalization, net operating performance that does not meet A.M. Best’s expectations or a material shift in its business profile skewed more heavily toward less creditworthy lines of 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.