OLDWICK, New Jersey – (COMMERCIAL THREAD) –AM Best confirmed the financial strength rating (FSR) of A + (superior) and the long-term issuer credit rating (long-term ICR) of “aa” (superior) of the life insurance subsidiaries of Western & Southern Financial Group, Inc. (WSFG). The subsidiaries of WSFG 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). All companies are domiciled in (Cincinnati, OH), unless otherwise specified.
At the same time, AM Best confirmed the FSR of A (Excellent) and the long-term ICR of “a +” (Excellent) of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). In addition, AM Best confirmed the long-term ICR of “a” (Excellent) and the long-term issue credit ratings (long-term IR) on the senior unsecured notes of WSFG. The outlook for these credit ratings (ratings) is stable. (See below for a detailed list of long-term IRs)
The ratings of the W&SF Group reflect the strength of its balance sheet, which AM Best considers to be the strongest, as well as its adequate operational performance, favorable business profile and very good enterprise risk management (ERM).
The W&SF Group’s balance sheet valuation reflects a very favorable risk-adjusted capitalization level, as measured by Best’s capital adequacy ratio (BCAR), which is enhanced by a high quality capital profile without the use of captives or authorized accounting practices. The overall ratio of statutory capital to assets has been at a higher level, compared to some of the group’s peers, and has provided additional stability through difficult market cycles. The W&SF Group accumulates additional capital compared to its peers in order to secure future growth options, as well as to provide assurance that customer needs are met accordingly. The group’s capital position has been remarkably resilient, even under stress scenarios, as there is a sufficient amount of sources of financial flexibility, including the capital available within the holding company for deployment to insurance companies. -life if necessary. Although the overall investment portfolio is of good credit quality, offering independent valuation assurance, exposure to sub-investment grade bonds, equities and asset-backed securities has grown steadily. and is always above industry benchmarks. An increasing percentage of NAIC-2 titers is noticeable; however, this is mainly due to the increase in allocations to investments in structured products, compared to the industry benchmark. The group’s liquidity is solid, as measured by AM Best, with modest financial and operational leverage and strong interest coverage. Finally, the ratings recognize WSLIC’s capital maintenance guarantees, excluding Gerber Life, for all insurance subsidiaries and its subsidiary, Lafayette Life.
The statutory operational performance of the W&SF Group has been volatile, reflecting the fluctuation of profits over time within the group’s ordinary life insurance line of business, which has suffered net losses in recent years. In addition, the group has shown a return on equity that continues to be below industry averages, in part due to high capitalization levels and, to some extent, the retention of redundant reserves. Yields were also affected by premium growth, which was well above industry averages. Overall GAAP earnings showed solid growth before 2020, and after 2020 they rebounded adequately. The group continues to be more exposed to interest rates given its reserve profile, with a significant portion of profits still driven by annuities, although investment spreads have slowly narrowed. Despite reputed benefits for the W&SF group’s rating levels, the group’s overall operational performance trend indicators have not tracked those of some of its top-rated peers over the past two years.
Given the concentration in annuities, there is a risk of disintermediation in a rapidly rising interest rate environment, although AM Best notes that growth has been strong in payout annuities, which alleviates this concern. . The risk of disintermediation is also partially mitigated by adequate protection against redemption fees. After the acquisition, Gerber Life now represents around 20% of the group’s revenues.
The commercial profile of the W&SF Group benefits from a very diversified multichannel distribution, with an emphasis on mid-market individuals, financial institutions and asset management. The expanded distribution relationship with Fidelity Investments enhanced annuity growth and added additional market share. The acquisition of Gerber Life added direct-to-consumer distribution capabilities and created a better balance between life insurance and annuity sales. The W&SF Group also sells universal life insurance products without secondary collateral through banks, using another distribution vehicle. Finally, while the W&SF Group has extended its product footprint and improved certain market positions, its overall position in the life insurance and annuities market is still moderate and it faces continued competition from others. companies in the highly competitive US life insurance and annuities market.
The W&SF Group incorporates a comprehensive risk management strategy and discipline, which has developed considerably over the years depending on the risks inherent in its balance sheet, its scope of activity and its commercial profile. The ERM has become robust and embedded in the fabric of the organization, including all major strategic, tactical and operational activities, as well as decision-making, which has led the group through times of difficulty, including 2007-2008 financial crisis and the unexpected COVID. -19 global pandemic.
Gerber Life’s ratings reflect the strength of its balance sheet, which AM Best considers very strong, as well as its adequate operational performance, neutral business profile and appropriate management of business risks.
The following long-term IRs have been confirmed with a stable outlook:
Western and Southern Financial Group, Inc.—
– “a” (Excellent) on $ 500 million of 5.75% senior unsecured notes due 2033
The West and South Life Insurance Company—
– “a +” (Excellent) on excess notes of $ 500 million at 3.75% due 2061
– “a +” (Excellent) on excess notes of $ 500 million at 5.15% maturing in 2049
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