Best’s News & Research Service - September 10, 2015 03:56 PM (EDT)
A.M. Best Revises Outlook to Positive for Security Benefit Life Insurance Company and Its Affiliate
- September 10, 2015 03:56 PM (EDT)
Oldwick //BestWire// - A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb+" of Security Benefit Life Insurance Company (Topeka, KS) and its affiliate First Security Benefit Life Insurance and Annuity Company of New York (Rye Brook, NY). The companies are collectively known as Security Benefit and are wholly owned subsidiaries of Security Benefit Corporation. Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the issue rating of "bbb-" on the existing surplus notes issued by Security Benefit Life Insurance Company. (See below for a detailed listing of the issue ratings.)
The revised outlook reflects the execution of management's strategic plan to moderate sales growth of its fixed indexed annuities (FIAs) following several years of high growth in order to provide a better balance between spread and fee-based revenue and reduce capital strain to improve operating results. The outlook also recognizes a moderate reduction in reinsurance leverage ratios and improved portfolio yields. The ratings are supported by a leading market position in the FIA space, a long history of marketing fixed and variable annuities in the retirement education market and favorable diversification of its distribution channels. Security Benefit has reported consistently positive earnings results on a statutory and U.S. GAAP basis, benefiting from favorable investment spreads, reinsurance transactions and reduced administration costs through the utilization of an affiliate for policy administration.
Partially offsetting rating factors are the concentration of business in annuity products and the associated risks of spread compression or disintermediation, and a higher risk appetite in its investment strategies relative to the industry. Security Benefit applies a differentiated investment strategy than the overall industry, with overweight allocations to structured securities, short-term investments (Schedule DA) and alternative assets (Schedule BA). A.M. Best notes that the structured-bond portfolio, while offering favorable yields and floating rate exposure, is viewed as higher risk given potential liquidity concerns under stressed capital market conditions and requires a high level of investment management expertise. Furthermore, Security Benefit's risk-adjusted capitalization is adequate to support the current ratings; however, the high growth in assets due to FIA sales has required capital contributions from the parent company in each of the past few years to maintain capital adequacy. Statutory capital is viewed as adequate, but qualitatively somewhat diminished given historical utilization of reinsurance and the need to grade in additional reserves for its existing FIA block. Finally, financial leverage and interest coverage ratios at the intermediate holding company level are within guidelines for the current rating. Security Benefit, consistent with a few FIA writers, maintains a negative debt-to-tangible capital ratio due to high deferred acquisition costs (DAC) attributable to rapid premium growth; however, A.M. Best notes strong surrender charge protection, which supports recoverability of the DAC balance and reduces disintermediation risk.
The following issue ratings have been affirmed with the outlook revised to positive from stable:
Security Benefit Life Insurance Company:
— "bbb-" on $50 million, 8.75% surplus notes, due 2016
— "bbb-" on $100 million, 7.45% surplus notes, due 2033
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.