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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 16, 2008 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of "a-" of Commonwealth Annuity and Life Insurance Company (Commonwealth) (Worcester, MA). The outlook for both ratings is stable. Commonwealth is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (Goldman Sachs), which has weathered the credit market turmoil better than a number of other large financial institutions.
The rating affirmations reflect Commonwealth's strong risk-adjusted capitalization, its steady history of GAAP earnings despite fluctuating statutory results and the discipline to maintain pricing at a favorable level even if this translates into lower new business volume.
While Commonwealth has taken investment write offs and remains exposed to a few troubled credits, A.M. Best believes that the company's investment portfolio is fairly conservative. A.M. Best expects that Commonwealth has access to hedging expertise, capital, deal flow and other Goldman Sachs resources, as needed. Since it was acquired in December 2005 by Goldman Sachs, the company has closed several reinsurance transactions. To support the acquisition of its variable annuity blocks of business, Commonwealth, with the assistance of its parent, has developed hedging strategies designed to cover guaranteed minimum benefit exposure following equity market declines.
Despite these positive attributes, A.M. Best believes Commonwealth may encounter challenges in achieving meaningful scale efficiencies given the highly competitive nature of the life reinsurance market, which is dominated by players with low cost structures and well established life reinsurance franchises. If additional blocks cannot be acquired at the expected pace, Commonwealth may not grow into the scale required to generate consistent statutory profits. Additionally, as the company's business plan relies on derivatives to offset the market risk associated with the variable annuity contract guarantees, the recent market environment has made the cost of hedging strategies an additional challenge to acquiring new business at target return levels.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
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.