Press Release - JULY 09, 2015

A.M. Best Affirms Ratings of Government Personnel Mutual Life Insurance Company


CONTACTS:
 Tom Zitelli
Senior Financial Analyst
(908) 439-2200, ext. 5412
tom.zitelli@ambest.com

Tom Rosendale
Assistant Vice President
(908) 439-2200, ext. 5201
thomas.rosendale@ambest.com

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

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

FOR IMMEDIATE RELEASE

OLDWICK - JULY 09, 2015
A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit rating (ICR) of "a-" of Government Personnel Mutual Life Insurance Company (GPM) (San Antonio, TX). Concurrently, A.M. Best has upgraded the FSR to B++ (Good) from B+ (Good) and the ICR to "bbb" from "bbb-" of GPM's wholly owned subsidiary, North Coast Life Insurance Company (North Coast) (Spokane, WA). The outlook for all ratings is stable.

The ratings of GPM reflect its military personnel and senior market niche, statutory operating profitability and strong risk-adjusted capitalization. The company's military life insurance market niche remains an important component of its overall marketing strategies. GPM has also diversified its marketing efforts to include the federal civil service, individual general civilian and senior markets. The success of its marketing plans has enabled the company to experience fluctuating, although still profitable, statutory operating results in recent years that have been primarily driven by its core ordinary life business segment. More specifically, improved persistency and mortality experience has been able to offset the new business strain of its final expense product and lower net investment income. GPM's ability to consistently produce statutory earnings, together with its high quality fixed-income and well-performing direct commercial mortgage portfolio has enabled the company to maintain a strong risk-adjusted capital position.

Partially offsetting these positive rating factors are the challenges GPM has faced in improving on both earnings and ordinary life premium growth. GPM has been challenged to improve its operating performance in recent years as new business expense strain, the company's relatively high infrastructure costs, inconsistent persistency and the continued low interest rate environment have limited statutory earnings growth. Additionally, the recent loss of its group lines of business has adversely impacted statutory performance. In response, the company has implemented cost management and revenue enhancement programs, strategies to conserve profitability of businesses and initiatives to improve agent productivity and persistency. Furthermore, the company has introduced new products and modified existing products to maintain its competitive position in its niche.

Additionally, A.M. Best remains concerned with GPM's high exposure to commercial mortgages. Although commercial mortgage loans as a percentage of the total investment portfolio has been decreasing recently, it still represents more than 100% of its capital and surplus. However, these concerns are partially mitigated by the historically consistent performance of the commercial mortgage loan portfolio.

The upgrade of North Coast's ratings reflects A.M. Best's view of the increasing strategic importance of North Coast to GPM, as evidenced by its functional integration within the organization, its adequate and improving risk-adjusted capitalization and the improved quality of capital following its acquisition by GPM. Offsetting rating factors include North Coast's limited business profile and scope of operations, declining ordinary life premiums and continued high level of interest rate risk.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.

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