A.M. Best Affirms Ratings of Sammons Financial Group, Inc. and Its Subsidiaries
June 4, 2015 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating of A+ (Superior) and the 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 the debt rating of “a-” for Sammons Financial Group, Inc. (SFG, Inc.) (Delaware) and its $200 million 7.0% senior unsecured notes due October 2043. SFG, Inc. is an intermediate holding company of 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 Sammons Financial Group (SFG). The outlook for all ratings is stable.
The affirmation of the ratings reflect SFG’s strong risk-adjusted capitalization, favorable operating performance and the historical support SFG has received from its ultimate parent, SEI, which is one of the leading privately held companies in the United States, along with the unique benefits provided by its employee stock ownership plan structure. SFG enjoys prominent market positions within indexed universal life and fixed indexed annuities, and its investment portfolio is of good overall credit quality with an above average yield relative to the U.S. life/health industry. The ratings also recognize the additional growth and diversity provided by its Sammons Retirement Solutions business. SFG’s financial leverage is modest with strong interest coverage ratios with additional financial capacity within the group.
Partially offsetting rating factors include SFG’s above average exposure to interest-sensitive liabilities, comprising nearly all of statutory reserves, which could result in disintermediation risk under rapidly rising interest rate scenarios. However, this risk is partially mitigated by the implementation of a macro hedge and strong surrender charge protection. While SFG’s investment portfolio remains sound, it is composed of a higher percentage of structured securities including asset-backed securities relative to the U.S. life industry. These securities continue to perform well. SFG’s liquidity resources remain strong, however its portfolio has higher allocations to assets, which may not be readily marketable under stressed capital market scenarios. Although reported capitalization remains strong, it has been enhanced by the utilization of high levels of affiliated and external reinsurance including captives and affiliated surplus notes. Finally, SFG faces increased levels of competition in its core markets, and its living benefit riders attached to its fixed indexed annuity products remain unhedged, though total exposure is moderate.
Positive rating actions are unlikely in the near term. Downward rating actions could result from a material decline in risk-adjusted capital, reduced operating earnings or material credit losses within the investment portfolio, as well as increased reliance on 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 .
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.
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