Best’s News & Research Service - August 04, 2016 02:25 PM (EDT)
A.M. Best Revises Outlooks to Negative for American Underwriters Life Insurance Company and Its Subsidiary
- August 04, 2016 02:25 PM (EDT)
Oldwick //BestWire// - A.M. Best has revised the outlooks to negative from stable and affirmed the financial strength rating of B (Fair) and the issuer credit rating of “bb” of American Underwriters Life Insurance Company (American Underwriters) (Phoenix, AZ) and its subsidiary, Century Life Assurance Company (Oklahoma City, OK). American Underwriters is the lead insurer within the American Underwriters Life Group (AUL) (Phoenix, AZ).
The revised outlooks reflect the recent reduction in AUL’s risk-adjusted capitalization and the continued decline in the group’s modest total consolidated capital. The outlook revisions also reflect continued pressure on AUL’s operating earnings with the reduction in fixed annuity production and modest results in its ordinary life business.
The ratings continue to reflect the group’s modest consolidated capital level and risk-adjusted capitalization, unfavorably impacted by net operating losses and investment impairments. The group maintains a high – albeit declining – level of below investment grade (BIG) bonds relative to capital and its long-term bond portfolio contains high exposure to the financial and energy sectors. A.M. Best believes the group may be susceptible to additional asset impairments from its BIG portfolio. A.M. Best notes that the group reduced its portfolio of unaffiliated common stock, which exposed it to equity market volatility.
AUL’s overall net premiums have declined from past years as the group scaled back production of individual fixed annuities. A.M. Best believes the group may be challenged to sustain and improve its net operating performance given its high exposure to interest-sensitive liabilities and the continued challenges of the current low interest rate environment with spread margins and investment opportunities. AUL posted a net operating loss in 2015 – the third in the past four years – after generating a consolidated net operating gain in 2014. The group’s core credit life and credit accident and health net premium trends have been stagnant in recent years. In addition, the ordinary life segment has yet to gain meaningful traction.
A.M. Best notes that AUL continues to offer a diversified product portfolio, which includes individual and group life insurance, credit life and health insurance and individual fixed annuities. The group also continues to develop its independent agent channels. Additionally, the group has increased its efforts to improve product diversification as illustrated by its acquisition of a large group life and disability contract. AUL also has the support of its ultimate owner, which has provided financial support in the past when needed.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
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