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Best’s News & Research Service - December 03, 2014 04:06 PM (EST)

A.M. Best Downgrades Issuer Credit Rating of American Fidelity Life Insurance Company

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Oldwick //BestWire// - A.M. Best has downgraded the issuer credit rating (ICR) to "bbb" from "bbb+" and affirmed the financial strength rating (FSR) of B++ (Good) of American Fidelity Life Insurance Company (AMFI) (Pensacola, FL). The outlook for the ICR has been revised to stable from negative while the outlook for the FSR remains stable.

The downgrade of AMFI reflects ongoing regulatory obstacles that are negatively impacting the marketing of the company's products on military bases, which has contributed to flat to declining premium trends in recent years and a diminished business profile. Operating earnings continue to be pressured by low interest rates and generous crediting rates. Despite the lower levels of new business strain and recent shifts in the investment portfolio to improve the portfolio yield, A.M. Best believes that earnings will continue to be pressured. In recent years, the company has increased the allocation of investment grade corporate bonds and decreased its allocation to U.S. Treasury securities. While the portfolio yield has remained fairly stable, the company's operating profile remains highly sensitive to spread compression, given the low interest rate environment and the significant proportion of annuity and side-fund deposits with very high guaranteed minimum credit rates. Additionally, AMFI maintains sizable investments in affiliated mortgages, real estate, and equities that are viewed as less liquid and expose the company to geographic concentration risks.

Partially offsetting these negative factors are AMFI's favorable risk-adjusted capitalization, supported by a highly liquid investment portfolio with minimal below investment grade bond exposure and still positive net earnings, which have benefited from lower levels of statutory strain.

The ratings could see positive movement through sustained growth in direct and net premiums, increasing investment spreads and a reduced concentration within the mortgage portfolio. Factors that could lead to negative rating actions include a continued decline in premium levels, decreases in risk-adjusted capitalization or unfavorable performance within the mortgage portfolio resulting in material realized capital losses.

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

  • Evaluating Country Risk

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers


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 visit A.M. Best's Ratings & Criteria Center.

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



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