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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 10, 2010 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit rating to "a-" from "a" of Security Mutual Life Insurance Company of New York (Security Mutual) (Binghamton, NY). The outlook for both ratings has been revised to stable from negative.
The rating actions reflect Security Mutual's lower statutory operating results, declining capital flexibility trends and shifting business profile driven by a significant growth in fixed annuities in recent years.
While Security Mutual's statutory operating results have been consistently positive over the past five years, its net gains from operations have declined significantly primarily due to decreasing profitability in its core ordinary life business. This segment was impacted by a high level of policyholder dividends on its participating policies, higher than expected regulatory fees and temporarily lower investment earnings due to the company's high liquidity position. Despite declining gains from operations, Security Mutual has maintained a high dividend payout ratio. As a result, growth in its capital and surplus position over the past five years has been muted.
A.M. Best also remains concerned with Security Mutual's financial flexibility and its low capital and surplus to liability ratio. While the company's adjusted capital and surplus position increased in the current year, this ratio has trended lower in recent years as a result of the large growth from fixed annuities. A.M. Best also notes Security Mutual's exposure in the commercial real estate market vis-a-vis its commercial mortgage loan portfolio. However, A.M. Best notes that Security Mutual's commercial mortgage loans have performed well with no foreclosures or delinquencies in the last five years despite the weak real estate market.
Direct premiums in Security Mutual's core ordinary life line of business have remained flat, with a decrease in reported first year premiums in 2009. A.M. Best notes that the company's fixed annuities, which have experienced higher premium growth over the past two years, also have recorded small statutory operating losses in the past two years. In addition, Security Mutual's group business, as well as other lines of business, has generated only a modest contribution to its overall operating results.
The ratings of Security Mutual reflect its consistent positive statutory operating results, conservatively managed investment portfolio and a competitive presence within the upscale traditional life insurance market niche, along with its growing worksite whole life business segment. Operating gains before income tax and dividends to policyholders represent an important driver of capital growth and indicate good margins. The company's high dividend scale gives it a competitive advantage as a mutual life insurance organization. The investment portfolio is conservatively managed, with little exposure to real estate and high yield bonds. The quality of the investment portfolio is attributable to the proactive nature of the company's enterprise risk management program. The company's capital structure also has no short-term liquidity needs as its $25 million in surplus notes are longer term in nature.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.