AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” (Superior) of Primerica Life Insurance Company (Nashville, TN) and its affiliates, National Benefit Life Insurance Company (Long Island City, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario), collectively referred to as Primerica Group.
Additionally, AM Best has affirmed the Long-Term ICR of “a-” (Excellent) of Primerica, Inc. (Primerica) (headquartered in Duluth, GA) [NYSE: PRI], which is the holding company for the group’s insurance and noninsurance operating companies. AM Best also has affirmed the Long-Term Issue Credit Rating of “a-” (Excellent) on $600 million, 2.8% senior unsecured notes, due 2031, of Primerica. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Primerica Group’s balance sheet strength, which AM Best assesses as very strong, as well as its very strong operating performance, favorable business profile and appropriate enterprise risk management.
Primerica Group’s ratings continue to recognise the group’s strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). In addition, the ratings reflect the company’s good liquidity, financial flexibility and an investment portfolio that traditionally is more focused on fixed income with no alternative asset classes, as well as very modest mortgage exposure, which is limited to commercial mortgage-backed securities. Overall, the group continues to maintain a favorable reserve profile almost exclusively composed of term life insurance products, viewed as low risk on AM Best’s product risk continuum, supported by a vast majority in investment-grade bonds, although it maintains higher allocations to NAIC class 2 bonds relative to the industry average.
Risk-adjusted capitalisation ratios are dampened qualitatively by high reinsurance leverage with heavy reliance on captive reinsurance solutions to fund its Regulation XXX reserves, which continue to moderate over time as new business is issued under principles-based reserving practices. The company also has solid financial leverage and interest coverage ratios, still within AM Best’s guidelines for these ratings. Operating leverage is still within AM Best’s overall GAAP tolerance; however, it is at the upper range, driven primarily by the use of operating leverage related to Regulation XXX reserves.
Primerica Group’s group earnings continuously have generated solid levels of GAAP and statutory net income due to favorable loss ratios. There has been some uptick in claims as a result of the COVID-19 pandemic, although more recently that has continued to decrease. Primerica has also demonstrated consistent premium growth in its insurance segment and favorable revenue growth in its investment and savings products segment, but this has been offset partially by higher-than-industry average lapse rates and historically high dividend payout ratios. Furthermore, insurance and other operating expenses have been on the rise as the company continues to grow and invest in infrastructure. Primerica Group’s operating profile benefits from noninsurance revenue, representing a substantial portion of overall GAAP revenue; this is generated from the sale of mutual funds and other investment savings products, along with distribution of other manufacturers’ annuity products, which generates fee-based revenue and provides a source of earnings diversification.
