A.M. Best Affirms Ratings of The Penn Mutual Life Insurance Company and Its Subsidiary
March 11, 2016 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings of “aa-” ofThe Penn Mutual Life Insurance Company (Penn Mutual Life) (Horsham, PA) and its wholly owned subsidiary, The Penn Insurance and Annuity Company (PIA) (Wilmington, DE) (together referred to as Penn Mutual). A.M. Best has also affirmed the issue ratings of “a” on the $200 million 6.65% surplus notes due June 15, 2034 and the $200 million 7.625% surplus notes due June 15, 2040 issued by Penn Mutual Life. The outlook for all ratings is stable.
The affirmation of the ratings reflects Penn Mutual’s well-established and focused growth strategy targeting affluent markets, its diversified business profile within core product lines, strong absolute and risk-adjusted capitalization and the positive benefits of its mutual ownership structure. Penn Mutual’s business profile emphasizes an extensive portfolio of individual life insurance products including traditional whole life, universal life with secondary guarantees and indexed universal life. Fixed and variable annuities complement its ordinary life product portfolio. Penn Mutual maintains a well-established and competitive affluent market presence developed through its focus on relationship-oriented producers. Life and annuity products are sold through distinct and harmonized distribution channels comprised of career and independent agents and relationships with independent broker/dealers who are focused mainly on individual life insurance product sales. These distribution channels have contributed to Penn Mutual’s strong sales growth in recent years. Penn Mutual’s full service broker/dealer, Janney Montgomery Scott, LLC, provides diversification of revenue and earnings. Consolidated risk-adjusted capitalization is superior for its current business and insurance risks. Risk-adjusted capitalization has been enhanced by the issuance of surplus notes as well as a conservative fixed-income investment portfolio that has performed well and is currently in a net unrealized gain position. Penn Mutual’s GAAP earnings and equity have been steadily increasing in recent years.
Partially offsetting these positive rating factors are the challenges to improve Penn Mutual’s overall operating performance and grow its businesses in the highly competitive life insurance and annuity marketplaces. The group’s statutory net operating performance and surplus growth have been impacted by increased sales-related expenses, the effects of the prolonged low interest rate environment and volatile equity markets and its history of self-funding most of its AXXX reserving requirements. Penn Mutual maintains a special purpose financial captive designed to address a portion of the reserve strain resulting from the AXXX reserve requirements. The group has also voluntarily reduced new annuity production from historical levels. The ratings also reflect the group’s moderate exposure to commercial mortgages through its investments in commercial mortgage-backed securities and its increasing levels of non-affiliated alternative assets (Schedule BA). However, A.M. Best believes Penn Mutual has the ability to hold these asset classes to maturity.
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 see A.M. Best’s Recent Rating Activityweb page.
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