OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to GCU (Beaver, PA). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect GCU’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile, and appropriate enterprise risk management.

GCU, formerly known as the Greek Catholic Union of the USA, is a fraternal benefit society that provides members with retirement products, life insurance, as well as a small closed block of Medicare supplement insurance. GCU is in its 130th year of operation since its founding on Feb. 14, 1892. GCU is domiciled in Pennsylvania, and the society’s products are distributed to members through contracted field marketing organizations and independent agents.

The ratings reflect GCU’s positive sales and membership growth, earnings trend and diversification efforts, but are partially offset by challenges in a competitive marketplace and a heavier interest-sensitive business profile. GCU has recorded strong growth in operating earnings through management of annuity spreads. Furthermore, unassigned funds continue to increase, resulting in an adequate level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), despite an increase in investment risk in recent periods.

Partially offsetting these positive rating factors is the society’s limited business profile, as approximately 38% of its direct premiums are derived from Pennsylvania and deferred fixed annuities account for almost all of the company’s net premiums and reserve liabilities. Additionally, the majority of fixed annuities have a relatively high guaranteed minimum crediting rate greater than or equal to 3% per annum, and so GCU gradually increased its risk appetite within the investment portfolio in recent years to offset spread compression. Sales of single premium whole life have increased in recent years, but remain only a modest proportion of overall premiums and currently provide little revenue diversification. AM Best notes GCU’s product innovation efforts by launching a fixed index annuity product in October 2021, but AM Best believes that GCU’s risk management capabilities for this growing product have not been fully tested. AM Best notes that the society has strengthened certain aspects of its risk management framework since the global financial crisis in 2008, including enhancements to its cyber risk management and the formalized documentation of operational procedures related to investments. AM Best will continue to monitor GCU’s progress in strengthening its risk management capabilities. The high degree of competition currently in the annuity marketplace is also a headwind toward execution of the company’s business plan.

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