CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JULY 03, 2013 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa” of the core life insurance subsidiaries of Western & Southern Financial Group Inc. (WSFG). The subsidiaries include: The Western and Southern Life Insurance Company (WSLIC), Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company (Goshen, NY) and The Lafayette Life Insurance Company. All companies are domiciled in Cincinnati, OH, except where specified. All ratings recognize the unconditional guarantee of WSLIC to its subsidiaries.
Concurrently, A.M. Best has affirmed the ICR of “a” and debt rating of “a” on $500 million 5.75% senior unsecured notes due 2033 of WSFG. The outlook for all ratings is stable.
The affirmation of the ratings reflects WSFG’s strong risk-adjusted capitalization, positive trend of statutory and GAAP operating earnings, diverse business profile and distribution network, and a growing base of its asset management business through both organic growth and acquisitions. WSFG’s risk-adjusted capitalization, as defined by Best’s Capital Adequacy Ratio, is supportive of its business and insurance risks, while its capital and surplus to liabilities ratio is among the highest in its peer group. GAAP earnings were positively impacted by increased investment income and lower acquisition costs related to decreased annuity sales. However, statutory net income was partially offset in 2012 when the group entered a coinsurance with funds withheld agreement to assume life and annuity risks from Reinsurance Group of America. WSFG has achieved an improved mix in premium income as management moderated fixed annuity sales in recent years while focusing on life insurance business. Through organic growth and acquisitions, WSFG has developed a diverse distribution network, product portfolio and assets under management.
Consolidated GAAP equity has increased to nearly $7 billion due to operating earnings and unrealized gains in its investment portfolio. Also, WSFG carries modest amounts of operating and financial leverage, which are well within A.M. Best guidelines for its ratings.
Partially mitigating factors include a continuing exposure to interest-sensitive products, which represent approximately two-thirds of total reserves. While the group has increased ordinary life sales in 2012, it will be challenged to grow its ordinary life line of business in a very competitive marketplace. While the group has a strong presence in the Midwest region with a diverse distribution platform, overall life insurance sales are small relative to other highly rated life insurers. Lastly, WSFG’s exposure to structured securities and mortgages represents an amount in excess of statutory capital and surplus, but is partially offset by strong monitoring and risk management, holdings in older vintages and mortgages with stringent underwriting standards.
Factors that could lead to positive ratings enhancement include continuation of operating performance relative to higher rated peers, further increase in the size of its national footprint and reduction in interest-sensitive reserves as a percentage of total reserves. Negative ratings action may occur if there is a significant increase in interest-sensitive business and its impact on spread margin, decline in new life insurance sales and deterioration of performance compared to its peer group.
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.