Best’s News & Research Service - December 03, 2014 04:07 PM (EST)
A.M. Best Downgrades Issuer Credit Rating of Trans World Assurance Company
Oldwick //BestWire// - A.M. Best has downgraded the issuer credit rating (ICR) to "bbb" from "bbb+" and affirmed the financial strength rating of B++ (Good) of Trans World Assurance Company (TWA)(San Mateo, CA). The outlook for the ICR has been revised to stable from negative while the outlook for the FSR remains stable.
Concurrently, A.M. Best has affirmed the affirmed ICR of "bbb-" and FSR of B+ (Good) for TWA's subsidiary, TransAm Assurance Company (TransAm)(Phoenix, AZ). The outlook on both ratings is stable.
The downgrade of TWA reflects ongoing regulatory obstacles that are negatively impacting the marketing of its products on military bases, which has contributed to a generally declining premium trends in recent years and an overall diminished business profile. Operating earnings continue to be pressured by low interest rates and generous crediting rates. Despite lower new business strain and efforts to improve the portfolio yield, A.M. Best believes that earnings will continue to be pressured. TWA's operating profile is highly interest rate sensitive and at risk of spread compression in the low interest rate environment given very high minimum guaranteed credit rates on the majority of its annuity and side-fund deposits. Additionally, the investment portfolio holds a material allocation to affiliated holdings (mortgage loans and real estate) which are geographically concentrated and partially offset the company's generally good liquidity profile.
Partially offsetting factors include strong risk-adjusted capitalization, overall positive statutory net earnings in recent years, and a high credit quality fixed income portfolio with minimal below investment grade bond exposure and favorable liquidity ratios.
The ratings of TWA 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 a negative rating action include a continued decline in premium levels, decreases in risk-adjusted capitalization, or unfavorable performance within the mortgage portfolio resulting in material capital losses.
The ratings affirmation of TransAm reflect its modest business and declining premium revenue as most new business is written through TWA. A.M. Best notes that TransAm maintains strong risk-adjusted capitalization and a highly liquid investment portfolio to support its operational needs.
Factors that could result in a positive rating action for TransAm include a positive change in the business profile to expand operations, providing a more beneficial impact to the enterprise as a whole, and a return to positive earnings supporting capital growth trends. Negative rating actions could result from continued declines in capitalization either through operating or 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:
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- Evaluating Country Risk
- A.M. Best's Liquidity Model for U.S. Life Insurers
- Rating Run-Off Insurers and Specialists
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.