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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 24, 2012 12:00 AM (EST)
A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength ratings (FSR) of B- (Fair) and issuer credit ratings (ICR) of “bb-” of Liberty Bankers Life Insurance Company (Liberty Bankers) and its life insurance subsidiary, American Benefit Life Insurance Company (American Benefit). Both companies are domiciled in Oklahoma City, OK.
Concurrently, A.M. Best has assigned an FSR of B- (Fair) and an ICR of “bb-” to another Liberty Bankers subsidiary, The Capitol Life Insurance Company (Capitol Life) (Dallas, TX). The outlook assigned to all ratings is stable.
The rating actions primarily reflect the recent substantial increase in both the absolute and risk-adjusted capital of Liberty Bankers due to a total of approximately $50 million in cash and income-producing real estate, which was contributed during the past two calendar quarters by its former parent, Realty Advisors, Inc. In addition, below investment grade bonds and the dollar amount of delinquent loans within Liberty Bankers’ direct commercial loan portfolio have declined over the past year. While management also has been focusing on reducing some of Liberty Bankers’ less liquid alternative investments, A.M. Best remains concerned with its relatively high level of real estate-related investments, which currently represent about 30% of invested assets and over three times capital and surplus.
The ratings also reflect the recent legal separation of Liberty Bankers from Realty Advisors, Inc., which became effective at year-end 2011. A.M. Best was concerned over the uncertainty regarding the financial condition of the real estate operations of Realty Advisors, Inc. and the impact it could have on Liberty Bankers given the current economic environment. However, A.M. Best believes that these concerns have been substantially mitigated by the structural separation of the companies.
Liberty Bankers is the group’s primary marketing arm with almost $190 million of direct premiums written through September 30, 2011. The group’s direct premiums have fluctuated in recent years due to a spike in annuity sales in 2008 and 2009 as a result of the flight to more stable fixed-income products during the financial crisis. While Liberty Bankers has been attempting to grow its ordinary life business in recent periods, it currently represents only a modest amount of sales. A.M. Best notes that the company has reported positive statutory earnings over the past five years despite investment impairments in its fixed-income and direct commercial mortgage loan portfolios.
American Benefit has experienced an increase in net premiums through its reinsurance relationship with Texas Service Life Insurance Company (Austin, TX) where it assumes pre-need and whole life insurance policies. Also, as of year-end 2010, the company’s capital position increased considerably due to its merger with former affiliate Winnfield Life Insurance Company (Winnfield Life). The merger also added a modest amount of direct premiums as Winnfield Life was a direct writer of pre-need life insurance in Louisiana. American Benefit also maintains an adequate risk-adjusted capital position for its current ratings. While the company has some exposure to mortgage loans in its investment portfolio, A.M. Best believes that American Benefit presently has sufficient capital to cover its current insurance and investment risks.
The ratings assigned to Capitol Life acknowledge its solid level of risk-adjusted capitalization, positive operating results and fairly liquid investment portfolio. Offsetting these positive rating factors is its short operating history since being acquired out of regulatory supervision in December 2007 and the real estate-related investment exposure of its direct parent, Liberty Bankers.
Positive rating actions could occur if the group’s risk-adjusted capital levels continue to improve, its exposure to real estate-related investments is substantially reduced and if the subsidiaries demonstrate controlled growth of their interest-sensitive business. Key factors that could result in negative rating actions include deterioration of risk-adjusted capital, material investment-related losses or a meaningful increase in commercial mortgage loan delinquencies.
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”; 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.