The Savings Bank Mutual Life Insurance Company of Massachusetts (SBLI) has had its long-term issuer credit rating (ICR) downgraded from “a+” to “a” and affirmed its financial strength rating (FSR) of A (Excellent) by A.M. Best.
The outlook of the FSR remains stable and the outlook of the long-term ICR has been revised to stable from negative.
The ratings are reflective of SBLI’s “very strong” balance sheet strength, in addition to its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The downgrade is a result of A.M. Best’s view of the modest quality of SBLI’s capital and its limited financial flexibility as reinsurance captive solutions are heavily utilised for new business growth.
SBLI’s issuance of a surplus note in 2017, which was used to fund its re-mutualisation in conjunction with buying out its private bank shareholders, represented 37.5 percent of the company’s ownership and is also placing pressure on the balance sheet.
A.M. Best suggests that the servicing of this surplus note will, in the short run, negatively affect capital relative to prior shareholder dividends paid, however, the ratings agency also believes that the cleaner ownership structure coupled with capping and stabilising future servicing costs to providers of capital are potential positives in the long-run.
Factors that offset these ratings partially include an investment portfolio of good credit quality with modest overall exposure to below investment grade bonds, real estate, schedule BA assets, equities, and mortgage loans relative to capital.
Additionally, A.M. Best notes: “SBLI utilises high quality reinsurance counterparties.”
Risk-adjusted capitalisation is projected to decline until SBLI Re is fully written down, but A.M Best expects SBLI’s Best's capital adequacy ratios should remain very strong.
The ratings agency views SBLI’s operating performance as adequate as it is supported by good mortality experience, moderate premium growth and favourable persistency.