Best’s News & Research Service - December 11, 2020 02:36 PM (EST)
AM Best Affirms Credit Ratings of Western & Southern Financial Group, Inc. and Its Subsidiaries
- December 11, 2020 02:36 PM (EST)
Oldwick //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa” of the life insurance subsidiaries of Western & Southern Financial Group, Inc. (WSFG). WSFG’s subsidiaries are The Western and Southern Life Insurance Company (WSLIC), Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company (Greenwich, NY) and its affiliate, The Lafayette Life Insurance Company (Lafayette Life) (collectively referred to as W&SF Group).
At the same time, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). In addition, AM Best has affirmed the Long-Term ICR of “a” and the Long-Term IR on the senior unsecured notes of WSFG.
The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Cincinnati, OH, except where specified. (See below for a detailed list of the Long-Term IRs)
The ratings of W&SF Group reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
W&SF Group’s balance sheet assessment is categorized at the strongest level and reflects a very favorable risk-adjusted capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), which is continuously enhanced by a high quality capital profile with no utilization of captives, or permitted accounting practices. The group’s capital is remarkably resilient, even in stressed scenarios, as there is a sufficient amount of sources of financial flexibility, including available capital at the holding company for deployment to the life insurance companies if needed. While the overall investment portfolio is of good credit quality, exposure to below investment grade bonds, equities and asset-backed securities are higher than industry benchmarks; however, this risk is offset partially by much lower levels of mortgage exposure, which has been increasing lately as well. An increasing percentage of NAIC 2 securities is noticeable but is primarily due to increased allocations to structured product investments, relative to the industry benchmark. The group’s liquidity is strong, as measured by AM Best, with modest financial and operating leverage and strong interest coverage. Finally, the ratings also recognize capital maintenance guarantees from WSLIC, excluding Gerber Life, to all insurance subsidiaries and its affiliate, Lafayette Life.
W&SF Group’s return on equity continues to be somewhat lower than industry aggregates due in part to strong capitalization levels and to some extent, retention of redundant reserves, as well as modest adjusted statutory profitability within the group’s ordinary life insurance line of business. Statutory operating performance has been somewhat volatile, while GAAP earnings have shown solid growth in all segments over the last seven years. Statutory results reflect some new business strain, as recent premium growth has been well-above industry averages. The group continues to have higher interest rate exposure given its reserve profile and a significant portion of earnings is driven by annuities, although investment spreads have remained relatively stable. Given the concentration in annuities, there is the potential for disintermediation risk in a rapidly rising interest rate environment, although AM Best notes that growth has been strong within immediate annuities, which mitigates this concern. Disintermediation risk also is mitigated partially by adequate surrender charge protection. Post-acquisition, Gerber also has contributed a fair amount in earnings to the overall group.
W&SF Group’s business profile benefits from a highly diversified multichannel distribution, with an emphasis on middle market individuals, financial institutions and asset management. Recently, the group has expanded its distribution to Fidelity Investments, which has certainly enhanced growth in annuities and added some additional market share. The acquisition of Gerber Life has added direct-to-consumer distribution capabilities and has created a better balance between life insurance and annuity sales. W&SF Group has leveraged its diverse expertise across multiple channel distributions, including sales of universal life insurance products with no secondary guarantees through banks. The company also is making strides in the area of innovation, with additional technology investments and partnerships providing resources in accelerated decision-making and enhanced alignment among the different subsidiaries. Finally, while W&SF Group has expanded its product footprint and improved some market positions, its overall market position in life insurance and annuities is still moderate, and it faces ongoing competition from other companies in the highly competitive U.S. life and annuity market.
The ratings of Gerber Life reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect the recent capital support provided to Gerber Life from WSFG.
The following Long-Term IRs have been affirmed with a stable outlook:
Western & Southern Financial Group, Inc.¬—
— “a” on $500 million 5.75% senior unsecured notes due 2033
The Western and Southern Life Insurance Company—
— “a+” on $500 million 5.150% surplus notes due 2049
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.