Best’s News & Research Service - June 23, 2015 08:58 AM (EDT)
A.M. Best Revises Issuer Credit Rating Outlook to Positive for SPJST
- June 23, 2015 08:58 AM (EDT)
Oldwick //BestWire// - A.M. Best has revised the issuer credit rating (ICR) outlook to positive from stable and affirmed the financial strength rating (FSR) of B (Fair) and the ICR of "bb" of SPJST (Temple, TX). The outlook for the FSR remains stable.
The positive outlook reflects increasing risk-adjusted capitalization, a return to positive earnings, improvements in SPJST's business mix and enhancements to the nascent enterprise risk management (ERM) program. Continued increases in unassigned funds, along with reduced allocations to higher risk assets in the investment portfolio, have led to increases in risk-adjusted capital in recent years. The society has reported generally positive earnings as the life and annuity segments have been profitable, but are offset by large fraternal expenses. SPJST has moderated its annuity production in recent years due to the low interest rate environment, as well as adjusted the policy features, in order to reduce the society's risk profile and improve the premium mix. A.M. Best would need to see continued progress in SPJST's ERM for further positive rating action to occur.
Offsetting these positive rating factors are SPJST's narrow business profile and high concentration risk. SPJST operates solely in the state of Texas, exposing the company to geographic concentration and increased sensitivity to regulatory changes and economic events. The society also has some concentration within the investment portfolio, as demonstrated by several large fixed-income holdings in the financial sector. The majority of the society's product reserves are related to interest-sensitive fixed annuities with relatively high guaranteed crediting rates and low surrender charge protection, exposing the society to spread compression if interest rates remain low and disintermediation if rates rise rapidly.
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