Best’s News & Research Service - March 09, 2017 09:15 AM (EST)
A.M. Best Revises Outlooks to Negative for American Fidelity Life Insurance Company
- March 09, 2017 09:15 AM (EST)
Oldwick //BestWire// - A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of American Fidelity Life Insurance Company (AMFI) (Pensacola, FL).
The outlook revisions reflect AMFI’s limited business profile, trend of contracting inforce business and A.M. Best’s view of the need for a more robust enterprise risk management (ERM) function.
The ratings reflect AMFI’s generally declining trend of net premiums and inforce block of business, increase in NAIC2 bond holdings, significant geographic concentration of holdings in real estate and mortgages, and investment concentration in the financial sector. AMFI has a challenging regulatory environment and exposure to spread compression on its interest-sensitive reserves, given the low interest rate environment and the significant proportion of annuity and side-fund deposits with high guaranteed minimum credit rates. A.M. Best also notes that AMFI Corporation, the parent of AMFI, has experienced declining debt service coverage ratios that are now below levels that support the current ratings.
Partially offsetting rating factors are AMFI’s strong risk-adjusted capitalization, generally positive operating results, high credit quality fixed income investment portfolio and its long history of marketing life insurance products in the military market. In recent years, the company has protected its portfolio yield by increasing the allocation to investment grade corporate bonds and decreased its allocation to U.S. Treasury securities.
Key rating factors that could result in a positive rating action include several years of sustained profitable growth in premium levels, inforce business metrics and capitalization, or enhanced ERM governance, and demonstration of a formal ERM program with improved data quality and internal controls. Key rating factors that could result in a negative rating action include decreased risk-adjusted capitalization or deterioration in the investment risk profile, or increased pressure to dividend to the parent from unfavorable corporate performance in the hotel industry.
This press release relates to Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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