Best’s News & Research Service - October 15, 2014 11:14 AM (EDT)
A.M. Best Upgrades Ratings of Americo Life, Inc. and Its Core Subsidiary
- October 15, 2014 11:14 AM (EDT)
Oldwick //BestWire// - A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit rating (ICR) to "a" from "a-" of Americo Financial Life and Annuity Insurance Company (AFL) (Dallas, TX). The outlook has been revised to stable from positive. Concurrently, A.M. Best has affirmed the FSRs of B+ (Good) and the ICRs of "bbb-" of AFL's life/health affiliates. The outlook for these ratings is stable. Additionally, A.M. Best has upgraded the ICR to "bbb" from "bbb-"of AFL's parent, Americo Life, Inc. (Americo) (Kansas City, MO) and revised the outlook to stable from positive. (See below for a detailed listing of AFL's life/health affiliates and ratings.)
The rating upgrades for AFL acknowledge its diversified sources of earnings derived from organic growth within its life insurance and annuity lines of business, and from the acquisition of blocks of business that has resulted in a favorable operating performance in recent periods. As a result, AFL has reported increasing capital and surplus. A.M. Best notes that AFL made a dividend payment during the first quarter of 2014 to help Americo repay its outstanding debt, which has resulted in a decline in capital and surplus. Despite the decrease in capitalization, AFL maintains a more than adequate risk-adjusted capital position for its current ratings at this time. Additionally, Americo no longer maintains any financial leverage now that all of its debt has been repaid. The rating upgrades also reflect the continued premium growth within AFL's life insurance operations, resulting in better diversification of its reserve liabilities.
Partially offsetting these positive rating factors are the substantial use of reinsurance and potential for spread compression, as the majority of the company's liabilities is interest-rate sensitive and the crediting rates for a significant portion of AFL's annuity business are currently at their guaranteed minimums. Furthermore, A.M. Best also notes that life insurance and annuity sales have historically fluctuated, driven by market conditions, low interest rates, a strategic decision to no longer market certain capital intensive insurance products following the financial crisis and a more recent strategic decision to reduce fixed annuity sales to provide a better balance between life and annuity business.
A.M. Best believes that a positive rating action is unlikely over the near to medium term. Negative rating actions could result from deteriorating operating performance, a shift in product reserves toward annuities, an inability to profitably grow its ordinary life business or a significant decline in risk-adjusted capitalization.
The FSRs of B+ (Good) and ICRs of "bbb-" have been affirmed for the following life/health affiliates of Americo Financial Life and Annuity Insurance Company:
- Great Southern Life Insurance Company
- Investors Life Insurance Company of North America
- National Farmers Union Life Insurance Company
- The Ohio State Life Insurance Company
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.
Key insurance criteria reports utilized:
- A.M. Best's Liquidity Model for U.S. Life Insurers
- A.M. Best's Perspective on Operating Leverage
- Evaluating Non-Insurance Ultimate Parents
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- Insurance Holding Company and Debt Ratings
- Rating Run-Off Insurers and Specialists
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.