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Best’s News & Research Service - February 26, 2014 02:03 PM (EST)

A.M. Best Revises Outlook to Stable for Fidelity Security Life Insurance Company and Its Subsidiary

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Oldwick //BestWire// - A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" of Fidelity Security Life Insurance Company (FSL) (Kansas City, MO) and its wholly owned subsidiary, Fidelity Security Life Insurance Company of New York (FSLNY) (New York, NY).

The stable outlook reflects the group's continued strong capitalization and favorable operating results reported in 2013. Pre-tax operating results, which increased 25% over the prior year, reflect profitability in four out of five of the organization's strategic business units (SBU), which operate in niche markets for supplemental health, life insurance and annuity products. A.M. Best notes that FSL reported a significant reduction in underwriting losses in its Asset Accumulation SBU during 2013, following a material loss in the prior year. Volatility within this SBU has been mitigated through product re-tooling and strategic reassessment. Preliminary 2013 cash flow testing results indicate no additional need for reserve strengthening related to FSL's annuity products.

The group continues to maintain good relationships with insurance carriers, well-established positions in supplemental health markets and good flexibility to adapt to The Patient Protection and Affordable Care Act mandates. FSL's business strategy utilizes various distribution partnerships to be responsive to consumers' needs through innovative and value-added product designs. In addition, management continues to focus on effectively managing operating expenses, allowing for strategic investments in areas such as technology. As in prior years, A.M. Best notes material concentration risk related to a long-standing reinsurance partnership, which is a primary source of the group's direct premiums written. A.M. Best acknowledges that the group materially reduced its exposure to below investment grade bonds over the past 12 months, and those holdings as a percentage of FSL's capital and surplus were approximately 22% at year-end 2013. As with most companies, the group will likely continue to be challenged to maintain adequate spreads in the current interest rate environment.

The group's New York-licensed entity, FSLNY, has been managing a block of fixed annuities from its previous owner, producing modest statutory profits. In 2013, FSLNY began marketing vision, prescription drug and stop-loss products and expects growth in premiums and operating earnings going forward with additional products introduced to the market over time. A.M. Best notes that the policy obligations and capitalization of FSLNY are explicitly supported by FSL.

Given the revision of the outlook to stable, A.M. Best believes the potential for additional positive rating actions on the group is limited in the near to medium term. Key factors that could trigger negative rating actions include deteriorating operating results and/or a material decline in capitalization or continued operating losses related to the Asset Accumulation SBU.

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

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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