A.M. Best Affirms Ratings of Fidelity & Guaranty Life Holdings, Inc. and Its Key Life/Health Subsidiaries
December 18, 2014 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit ratings (ICR) of “bbb+” of the key life/health subsidiaries of Fidelity & Guaranty Life Holdings, Inc. (FGL) (Delaware). Concurrently, A.M. Best has affirmed the ICR and existing senior debt rating of “bb+” of FGL. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The ratings reflect FGL’s good risk-adjusted capitalization and financial flexibility, improved sales trends, consistent earnings performance and enhanced competitive position in the fixed index annuity (FIA) market. The company has established a competitive position in the FIA market, as recent strong sales growth has placed the company among the top ten writers of such products. The improved competitive position is attributable to the company’s ongoing marketing efforts to increase sales penetration with their existing distribution partners. Risk-adjusted capitalization, as defined by Best’s Capital Adequacy Ratio (BCAR), is sufficient to support its current business and insurance risks. Consistently positive statutory net income and financial flexibility with access to the debt and equity markets via its holding company, Fidelity & Guaranty Life Holdings, Inc., also contributes positively to the company’s credit profile
Offsetting rating factors include FGL’s product concentration within the increasingly competitive FIA market. A.M. Best notes that new market entrants have increased the competitive pressures, which could weigh on sales or margins in the future. A.M. Best also notes the increased risk profile of the investment portfolio, with below investment grade bonds and relatively illiquid securities accounting for a larger portion of the portfolio than in the past. Finally, while acknowledging that the credit profile of FGL’s ultimate parent, Harbinger Group, Inc. (HGI), has improved somewhat recently, A.M. Best notes that HGI’s business model employs significant financial leverage to meet its business objectives. Given its level of indebtedness, A.M. Best believes that HGI’s ability to provide capital to FGL during periods of financial stress may be limited.
A.M. Best notes that positive rating movement for FGL would be possible from reduction in overall investment risk, material improvement in its risk-adjusted capitalization and significant improvement in the credit profile of FGL’s ultimate parent, HGI. Negative rating actions could result from a material decline in the company’s operating performance, risk-adjusted capitalization or deterioration in HGI’s credit profile.
The FSR of B++ (Good) and the ICRs of “bbb+” have been affirmed for the following key life/health subsidiaries of Fidelity & Guaranty Life Holdings, Inc.:
- Fidelity & Guaranty Life Insurance Company
- Fidelity & Guaranty Life Insurance Company of New York
The following debt rating has been affirmed:
— “bb+” on $300 million 6.375% senior unsecured notes, due 2021
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.
Key insurance criteria reports utilized:
- A.M. Best’s Liquidity Model for U.S. Life Insurers
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
- Evaluating U.S. Surplus Note
- Analyzing Insurance Holding Company Liquidity
- Rating Members of Insurance Groups
- Understanding Universal BCAR
- A.M. Best’s Perspective on Operating Leverage
- Evaluating Non-Insurance Ultimate Parents
- Insurance Holding Company and Debt Ratings
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
