Best’s News & Research Service - June 09, 2015 12:06 PM (EDT)
A.M. Best Revises Rating Outlooks to Positive for GBU Financial Life
Oldwick //BestWire// - A.M. Best has revised the outlooks to positive from stable and affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit rating of "bbb+" for GBU Financial Life (GBU or the Society) (Pittsburgh, PA).
The positive outlook reflects GBU's strong growth in operating earnings through management of annuity spreads, and continued growth in unassigned funds and risk-adjusted capitalization. Unassigned funds have increased significantly in recent years as a result of earnings, and led to continued improvements in risk-adjusted capitalization. Furthermore, A.M. Best notes that GBU fully reserves its annuity business, which is considered more conservative and provides an additional capital cushion not reflected in unassigned funds. The investment portfolio's net yield remains well above industry averages, allowing the Society to pay a higher crediting rate to policyholders while maintaining favorable spread margins.
Partially offsetting these positive rating factors are Society's limited business profile, as fixed annuities account for almost all of direct premiums and reserve liabilities, and increasing risk appetite within the investment portfolio. Additionally, the majority of fixed annuities have a relatively high guaranteed minimum crediting rate, exposing the Society to spread compression in the persistent low interest rate environment. Sales of single premium whole life have increased in recent years, but remain only a modest proportion of overall premiums and provide little revenue diversification. In an effort to maintain favorable investment yields, the Society has a strategy of purchasing longer-maturity bonds and has recently increased its exposure to lower-rated investment grade bonds.
Positive rating action could occur with continued improvements in the business mix between life and annuity sales, by maintaining favorable earning spreads and through enhanced risk management capabilities. Factors that could lead to negative rating action include increased concentration of the business profile, spread compression causing unfavorable earnings trends and declines in risk-adjusted capitalization.
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:
- 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.
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