A.M. Best has upgraded the financial strength rating (FSR) to “A” (Excellent) from “A-“ (Excellent) and issuer credit rating (ICR) to "a" from "a-" of Americo Financial Life and Annuity Insurance Company (AFL).
The agency has also affirmed the FSR of “B+” (Good) and the ICR of "bbb-" of AFL's life and health affiliates.
Finally, A.M. Best has upgraded the ICR to "bbb" from "bbb-"of AFL's parent, Americo Life.
The rating upgrades for AFL acknowledge its diversified sources of earnings derived from organic growth within its life insurance and annuity lines of business, and from the acquisition of blocks of business that has resulted in a favourable operating performance in recent periods.
As a result, AFL has reported increasing capital and surplus. A.M. Best notes that AFL made a dividend payment during the Q1 of 2014 to help Americo repay its outstanding debt, which has resulted in a decline in capital and surplus.
Despite the decrease in capitalisation, A.M. Best has stated that “AFL maintains a more than adequate risk-adjusted capital position for its current ratings at this time”.
Additionally, Americo no longer maintains any financial leverage now that all of its debt has been repaid.
The rating upgrades also reflect the continued premium growth within AFL's life insurance operations, resulting in better diversification of its reserve liabilities.
Partially offsetting these positive rating factors are the substantial use of reinsurance and potential for spread compression, as the majority of the company's liabilities are interest-rate sensitive and the crediting rates for a significant portion of AFL's annuity business are currently at their guaranteed minimums.
A.M. Best has also noted that life insurance and annuity sales have historically fluctuated, driven by market conditions, low interest rates, a strategic decision to no longer market certain capital intensive insurance products following the financial crisis and “a more recent strategic decision to reduce fixed annuity sales to provide a better balance between life and annuity business”.
The life and health affiliates of AFL are: Great Southern Life Insurance Company; Investors Life Insurance Company of North America; National Farmers Union Life Insurance Company; and the Ohio State Life Insurance Company.
