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Best’s News & Research Service - April 29, 2016 12:13 PM (EDT)

A.M. Best Revises Outlook to Positive for New Era Life Insurance Company and Its Subsidiaries

  • April 29, 2016 12:13 PM (EDT)
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Oldwick //BestWire// - A.M. Best has revised the outlooks to positive from stable and affirmed the financial strength rating of B+ (Good) and the issuer credit ratings of “bbb-”of New Era Life Insurance Company and its wholly owned life insurance subsidiaries, New Era Life Insurance Company of the Midwest and Philadelphia American Life Insurance Company, together known as the New Era Group. All companies are domiciled in Houston, TX.

New Era Life Insurance Company is a wholly owned subsidiary of New Era Enterprises, Inc., a privately owned insurance holding company. The organization has experienced considerable growth since its inception through acquisitions of distressed companies, and in particular has seen a surge in organic growth in the last decade. While historically focused on the senior segment, New Era Group has entered into the under age 65 market, in recent years, with hospital indemnity, accident, critical illness and GAP products to diversify its offerings beyond its core Medicare supplement, fixed annuity and life lines of business.

The revised outlook reflects New Era Group’s positive trend of increasing absolute capital with a five-year CAGR of 8% and improvements in risk-adjusted capital. The ratings also reflect the company’s strong operating results, with return of equity measures of 10% in 2015, 17.5% in 2014 and 14.7% in 2013, and which were driven by profitable underwriting and favorable net investment income results. However, operating results in 2015 were slightly impacted by new business surplus strain and higher-than-expected loss ratios, related to the group’s cancer and Medicare supplement products. New Era Group’s improvement in risk-adjusted capital reflects the favorable operating trends, as well as improved investment performance, as realized losses have decreased since 2011.

Partially offsetting these positive rating factors are New Era Group’s high level of investment exposure related to its commercial mortgage assets, residential mortgage-backed securities (RMBS), asset-backed securities (ABS) and collateralized debt obligations (CDO) as a percentage of its total investment portfolio. Due mainly to the downturn in the energy and related markets in 2015, the group’s overall investment portfolio fell to a gross unrealized loss position for the first time at year-end 2015. However, the portfolio has recovered to a gross unrealized gain position as of the end of first-quarter 2016. The group’s intention has always been to hold most investments until maturity; thus, market fluctuations, although closely monitored, do not affect investment disposals. A.M. Best remains concerned with the group’s risk appetite related to mortgages, which increased in 2015, and high-risk assets, which include RMBS, CDOs and other below investment grade assets. The company’s potential credit exposure can be unfavorable in a volatile economic environment. A.M. Best also notes the company’s high level of interest-sensitive fixed annuities, which can be negatively impacted by spread compression, and a narrowing business profile that is increasingly focused on Medical Supplement business for new business growth, which can be negatively impacted by unfavorable underwriting.

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 see A.M. Best’s Recent Rating Activity web page.

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

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