A.M. Best Affirms Ratings of Ameritas Life Insurance Corp. and Subsidiary
February 6, 2015 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+” of Ameritas Life Insurance Corp. (Ameritas Life) (Lincoln, NE) and Ameritas Life Insurance Corp. of New York (Ameritas NY) (New York, NY). These insurance entities comprise the life/health operations of Ameritas Mutual Holding Company (Ameritas) (Lincoln, NE). Concurrently, A.M. Best has affirmed the “a-” debt rating on the group’s existing surplus notes. The outlook for all ratings is positive.
The rating affirmations primarily reflect Ameritas’ strong risk-adjusted capitalization, diversified operating earnings, high-quality balance sheet and favorable business profile. The ratings also reflect the organization’s well-established position in the group dental insurance marketplace. Ameritas’ current financial leverage is modest, with a reasonable level of intangibles facilitating a solid capital base. Moreover, as a mutual holding company, Ameritas has good financial flexibility with access to the capital markets while maintaining its focus on managing prudently for the long-term.
Ameritas enjoys diversified sources of revenue and earnings from its array of product offerings, including individual life insurance, annuities and disability insurance; group dental, vision and hearing; retirement plans; and mutual funds and other investment programs. The company is strongly positioned as a top-five provider of group dental and vision, which has historically produced favorable operating results. Additionally, Ameritas’ market position within the U.S. life insurance arena has generally remained steady. Recent life sales trends have either been in line with or have exceeded industry averages, with a focus on traditional and indexed universal life products. With respect to earnings, A.M. Best notes that Ameritas recently reported increased mortality and morbidity that impacted the profitability of its life and disability business through the first three quarters of 2014. Additionally, A.M. Best believes that Ameritas’ retirement plans segment lacks some scale and remains challenged to reverse the negative net flows recently experienced.
Calvert Investments, Inc. (Calvert), the enterprise’s wholly owned investment management firm, has recently reported favorable investment performance and is a noteworthy contributor to Ameritas’ consolidated results. However, A.M. Best has observed Calvert’s challenges to record positive net flows and consistently grow assets under management as the economy slowly recovers. Moreover, while Ameritas’ overall operating results have strengthened more recently, competitive pressures in some of the company’s core lines of business, the low interest rate environment and the impact of the Affordable Care Act on the dental business present potential headwinds for further growth in the near to medium term.
Ameritas maintains a conservative investment profile, with the largest portion of its assets allocated to highly rated corporates, and low exposure to below investment grade bonds relative to industry norms. A.M. Best notes that the group has material investments in mortgages and real estate-related assets relative to its capital and surplus – roughly 100% at Sept. 30, 2014. However, impairments related to these asset classes have been modest of late and the commercial mortgage portfolio has a low average loan size, favorable loan-to-value ratios and the majority is written with personal guarantees (i.e., with recourse).
Factors that could result in an upgrade of Ameritas’ ratings include continued growth in GAAP and statutory earnings, favorable sales trends in life insurance relative to similarly rated companies and operating results across core segments that are consistent with A.M. Best’s expectations. Factors that may result in a revision of the rating outlook to stable include a substantial decline in capital, material investment losses, or if sales and/or earnings fall below A.M. Best’s expectations.
The following debt rating has been affirmed:
The Union Central Life Insurance Company (merged into Ameritas Life eff. July 1, 2014)—
— “a-” on $50 million 8.20% surplus notes, due 2026
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
•A.M. Best’s Perspective on Operating Leverage
•Evaluating U.S. Surplus Notes
•Insurance Holding Company and Debt Ratings
•Rating Members of Insurance Groups
•Risk Management and the Rating Process for Insurance Companies
•Understanding BCAR for U.S. and Canadian Life/Health Insurers
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.
