Best’s News & Research Service - March 19, 2014 12:11 PM (EDT)
A.M. Best Downgrades Ratings of North Carolina Mutual Life Insurance Company
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating (FSR) to C+ (Marginal) from C++ (Marginal) and issuer credit rating (ICR) to "b-" from "b" of North Carolina Mutual Life Insurance Company (NC Mutual) (Durham, NC). The outlook for the FSR has been revised to negative from stable, while the outlook for the ICR has been revised to negative from positive.
The rating actions reflect NC Mutual's reported 2013 statutory operating loss of approximately $2.5 million, primarily due to unfavorable underwriting results, lower net investment income, pension and severance related costs and a number of accounting and reserve adjustments. Consequently, NC Mutual's risk-adjusted capitalization has significantly deteriorated, which, coupled with a historical trend of modest absolute capital levels in 2012 and prior, has resulted in a level of surplus viewed as modest by A.M. Best.
Partially offsetting these negative rating factors are NC Mutual's continued focus on its new business model, a number of fee-based initiatives and a reduction in operating expenses, which are expected to add to its reported income in future periods. Additionally, the company's overall premium is expected to increase in 2014 due to the completion of payments relating to an acquired business in 2008.
The negative outlook reflects the possibility of future rating downgrades should there be a continued deterioration in NC Mutual's operating results and risk-adjusted capitalization. While near-to-medium term improvements in the company's current rating level are not likely, sustained improvement in its risk-adjusted capitalization and operating results may result in a revision of the current outlook to stable.
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.
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