A.M. Best Affirms Ratings of Sammons Financial Group, Inc. and its Subsidiaries
June 3, 2014 by A.M. Best
Oldwick – A.M. Best has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Midland National Life Insurance Company (Midland National) and North American Company for Life and Health Insurance (North American) (both domiciled in Des Moines, IA). Concurrently, A.M. Best has affirmed the ICR of “a-” and debt rating of “a-” for Sammons Financial Group, Inc. (SFG, Inc.) (Delaware) and its $200 million 7.0% 30-year senior unsecured notes. SFG, Inc. is an intermediate holding company for Midland National and North American, and is indirectly owned by Sammons Enterprises, Inc. (SEI). Midland National and North American (the group’s key life/health insurance subsidiaries) are jointly referred to as the Sammons Financial Group (SFG). The outlook for all ratings is stable.
The ratings of SFG reflect its strong and consistent operating performance and capital generation abilities which has resulted in a solid risk-adjusted capital position. Additionally, the ratings reflect the group’s adequate liquidity and demonstrated financial flexibility with the recent issuance of $200 million senior unsecured notes at SFG, Inc. The consolidated group maintains only a moderate amount of financial leverage, and interest coverage remains very strong. SFG continues to benefit from a well-managed investment portfolio that has generated above average investment returns, enabling the group to maintain targeted interest spreads despite the current low interest rate environment. In addition, the ordinary life segment has experienced steady growth and favorable operating results, which continue to moderately add diversity to its overall business profile. In an ongoing effort to broaden its product portfolio, SFG’s newer Sammons Retirement Solutions segment, which distributes retirement-oriented products such as mutual funds and variable annuities through broker-dealers and financial advisers, achieved $630 million of sales in 2013.
Partially offsetting these positive rating factors is the material concentration in interest-sensitive life and annuity reserves which comprise approximately 95% of the group’s total reserves. While A.M. Best acknowledges the group’s effort to diversify its current mix of business, the majority of SFG’s reserves are subject to guaranteed minimum interest rates. SFG is also exposed to an increasing amount of annuities with a guaranteed living withdrawal benefit rider that is not currently hedged. However, the net amount of risk remains modest at approximately $468 million or 8% of the total account balance as of year-end 2013. A.M. Best also notes that SFG maintains a relatively high exposure to structured securities and has significantly increased its exposure to private placements and commercial mortgage loans in recent periods, which increases risk and negatively impacts liquidity. However, through the active management of portfolio manager Guggenheim Partners Investment Management, LLC (an affiliated company), SFG has experienced just a modest level of overall asset impairments and has reduced higher investment risk in other asset classes, including alternative investments and below investment grade bonds.
Positive rating actions are unlikely in the near term. Factors that could have a negative impact on the outlook and/or ratings include increased impairments from additional investment risk, a material decline in risk-adjusted capital or a change in business profile that would increase exposure to interest-sensitive product lines.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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