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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - NOVEMBER 30, 2006 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating (FSR) of B (Fair) of Guaranty Income Life Insurance Company (Guaranty Income) (Baton Rouge, LA). The outlook has been revised to positive from stable.
The revised outlook is based on recent favorable developments and primarily reflects Guaranty Income's continued improvement in its absolute and risk-adjusted capital positions, along with the further reduction of its debt at the parent company during third quarter 2006. These improvements were accomplished through the group's divestitures of several additional non-core investment subsidiaries that are owned by the parent company.
The parent company sold the Innisfree Retirement Center during fourth quarter 2005 and a New Orleans area radio station in early 2006, which resulted in approximately $7.5 million in debt reduction and $2 million of capital contributions to Guaranty Income.
In July 2006, the parent company sold a Houma, Louisiana cluster of radio stations that resulted in it receiving proceeds of over $12 million. The proceeds from this transaction were partially used to increase the capital of Guaranty Income by an additional $2 million and to pay down approximately $5 million in debt at the parent company.
During the past three years and through the first nine months of 2006, premiums written have been declining due to a reduction in annuity sales. The reduction was necessitated by spread compression,competition in the annuity market and statutory surplus strain.
With the strengthened capital level and improvements in spreads, Guaranty Income is forecasting an increase in future annuity and AnnuiCare sales. A.M. Best will be monitoring Guaranty Income's projections for premium growth and its ability to expand its direct and net premium base on a profitable basis going forward. Recent earnings improvements have been primarily driven by improved spread management. Going forward, the company will need to continue to effectively manage its spreads in order to continue to produce favorable operating results. A.M. Best believes Guaranty Income may be challenged to meet its premium and earnings projections.
Additionally, while the company has recently been able to expand its capital position through several non-recurring initiatives, A.M. Best believes Guaranty Income will need to organically grow capital through retained earnings to alleviate statutory surplus strain as the company expands its annuity sales over the coming years.
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