AM Best Affirms Credit Ratings of Western & Southern Financial Group, Inc. and Its Subsidiaries
December 23, 2018 by A.M. Best
Oldwick – AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa” for the life insurance subsidiaries of Western & Southern Financial Group, Inc. (WSFG). WSFG’s subsidiaries are The Western and Southern Life Insurance Company (WSLIC), Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company (Greenwich, NY) and its affiliate, The Lafayette Life Insurance Company (Lafayette Life). Concurrently, AM Best has affirmed the Long-Term ICR of “a” and the Long-Term Issue Credit Rating of “a” on the $500 million 5.75% senior unsecured notes due 2033 of WSFG. All companies are domiciled in Cincinnati, OH, except where specified. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect WSFG’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
WSFG’s balance sheet assessment is categorized at the strongest level and reflects a favorable risk-adjusted capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), which is enhanced by a high quality capital profile with no utilization of captives, surplus notes or permitted accounting practices. While the overall investment portfolio is of good credit quality, exposure to below investment grade bonds, equities and asset-backed securities are higher than benchmarks; however, this risk is partially offset by much lower levels of mortgage exposure. Liquidity is strong, as measured by AM Best, with exceptional financial flexibility given modest leverage and interest coverage. Finally, the ratings also recognize guarantees from WSLIC to all insurance subsidiaries and its affiliate, Lafayette Life.
WSFG’s return on equity continues to be somewhat lower than industry aggregates due in part to strong capitalization levels, retention of redundant reserves and modest adjusted statutory profitability within the group’s ordinary life insurance line of business. Statutory operating performance has been somewhat volatile, while GAAP earnings have shown solid growth in all segments over the last five years. Statutory results reflect some new business strain as premium growth has been well-above industry averages, and an increase in asset adequacy reserves. The group has high interest rate exposure as most of its earnings have been driven by annuities, although investment spreads remain relatively stable. Given the concentration in annuities, there is the potential for disintermediation risk in a rapidly rising interest rate environment, although AM Best notes that growth has been strong within immediate annuities, which mitigates this concern. Disintermediation risk also is mitigated partially by adequate surrender charge protection and modest deferred acquisition costs to equity GAAP ratios.
WSFG’s business profile benefits from a highly diversified multichannel distribution, with an emphasis on middle market individuals, financial institutions and asset management. Recently, the group has expanded its distribution to Fidelity Investments, which is expected to enhance growth in annuities and add additional market share and announced its acquisition of Gerber Life Insurance Company, which will add direct-to-consumer distribution capabilities and create a better balance between life and annuity sales. Finally, while WSFG has expanded its product footprint and improved some market positions, its overall market position in life insurance and annuities is moderate and it faces ongoing competition from other companies in the highly competitive U.S. life and annuity market.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.
BN-NJ-12-20-2018 1034 ET #
