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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 17, 2013 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of B+ (Good) and issuer credit ratings (ICR) of “bbb-” of Central United Life Insurance Company (Central United) (Little Rock, AR), The Manhattan Life Insurance Company (Manhattan Life) (Great Neck, NY), Family Life Insurance Company (Family Life) (Houston, TX) and Investors Consolidated Insurance Company (Investors) (Concord, NH), together known as the Manhattan Insurance Group (MIG). All companies are subsidiaries of the privately-held Harris Insurance Holdings, Inc. (Houston, TX). The outlook for these ratings is stable.
Concurrently, A.M. Best has assigned an FSR of B+ (Good) and an ICR of “bbb-” to Western United Life Assurance Company (WULA) (Spokane, WA), which was recently acquired by Central United. The outlook assigned to both ratings is stable. On March 31, 2013, Central United contributed the stock of Investors to WULA, and management intends to merge Investors into WULA, with WULA being the surviving entity before year-end 2013.
The rating affirmations primarily reflect MIG’s adequate risk-adjusted capitalization, its increasingly diverse portfolio of life and accident and health products, its continued favorable expense management and positive net income, which is driven by its improved underwriting and capital gains. Sales of MIG’s worksite business, primarily cancer, accident and hospital indemnity offerings, were favorable in 2012 and improving loss ratios from these core products were reported. Additionally, the group is expanding its worksite operations, which includes the Latin American market.
In response to the Patient Protection and Affordable Care Act (PPACA), MIG has emphasized growth in its hospital indemnity product lines. MIG is well-recognized as an opportunistic acquirer of companies and blocks of troubled business, which it has historically managed to profitability through careful rate and expense management. MIG’s recent purchase of WULA, which focuses on the fixed annuity market, further enhances its product diversification and creates opportunities for additional distribution and investment portfolio management.
Partially offsetting these positive rating factors are MIG’s historically fluctuating operating results and capitalization, primarily due to its strategy of acquiring blocks of business and/or entities and subsequent integration. Additional earnings headwinds exist due to spread compression within the group’s life and annuity blocks that have relatively high guaranteed minimum interest rates. A.M. Best notes that much of the spread compression has been driven by MIG’s overly conservative investment portfolio with large allocations to U.S. Treasury securities. MIG plans to reallocate the portfolio into investment grade corporates to improve spreads. A.M. Best also notes that WULA’s investment holdings are heavily weighted in structured securities backed by subprime mortgages. Although the subprime portfolio is currently investment grade these securities represented over 150% of WULA’s capital and surplus at year-end 2012.
While the rating outlook is stable, future positive rating actions may result from organic earnings growth, a reduction in leverage throughout the organization, continued maintenance of favorable loss ratios for acquired blocks of business and continued good risk-adjusted capitalization levels for each of the subsidiaries. Negative rating actions could result from a weakened operating performance, higher financial leverage and deterioration in risk-adjusted capitalization levels.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.