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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 27, 2004 12:00 AM (EST)
A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B+ (Very Good) of Guaranty Income Life Insurance Company (GILICO) (Baton Rouge, LA). The rating has been removed from under review, and the outlook remains negative.
This rating action reflects GILICO's modest capitalization, continued statutory losses, and relatively high leverage and intangibles at Guaranty Corporation, the parent company.
Over the last two years, GILICO's capital and surplus position (relative to liabilities) has declined due to strain from the rapid expansion of its fixed annuity product line and realized capital losses from holdings of below investment grade investments. Although the company has been profitable on a GAAP basis, statutory losses have been recorded as earnings have been negatively impacted by the prolonged low interest rate environment, which has led to spread compression. In response to its capital losses, GILICO has been closely monitoring the credit quality of its investments, including raising cash holdings in the portfolio while shortening the effective duration of its fixed income securities to reduce overall surplus volatility. Guaranty Corporation has also committed to the long-term growth of GILICO by pursuing various capital raising initiatives, including reinsurance and the sale of non-core assets to raise capital at the insurance company to appropriate levels and reduce its own leverage. While to-date the total expected capital enhancements have not occurred, GILICO has improved its expense structure and slowed down its rapid expansion in order to reach profitability and improve its capital structure in the future.
Going forward, A.M. Best anticipates GILICO will continue to generate moderated sales momentum in the fixed annuity market, continue to decrease its expense levels and expand its geographic coverage, thus reducing concentration risk.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.