OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of GCU (Beaver, PA), formerly known as the Greek Catholic Union of the USA.

The Credit Ratings (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.

The negative outlooks reflect a decrease in GCU’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), to an assessed level of weak at year-end 2022 from an adequate assessment at year-end 2021. In addition, the projected BCAR for year-end 2023 is expected to be below historical levels due to continued annuity growth. The decline in risk-adjusted capitalization is related primarily to strong annuity sales growth that the company has had since modestly scaled back in the first six months of 2023. Available capital has been affected by unrealized capital losses due to the long duration of fixed-income investments. GCU has experienced recent declines in some operating return metrics, including pressured investment spreads and the impairment of certain fixed income investments. Management has implemented and may execute additional mitigating strategies to improve GCU’s capitalization over the near term, and AM Best will monitor its progress closely over the next few quarters.

Offsetting rating factors include GCU’s positive sales and membership growth, in contrast to several fraternal peers, and quality of capital that is unencumbered by surplus notes, other forms of financial leverage or captives. The society has access to some additional liquidity should it be needed through the Federal Home Loan Bank of Pittsburgh. The society’s products are distributed to members through productive field marketing organizations and independent agents, but in a competitive marketplace that is a headwind toward execution of the company’s business plan.

The majority of premiums are derived from Pennsylvania, and interest-sensitive deferred fixed annuities account for almost all of the company’s premiums and reserve liabilities; however, management has been focused on product innovation efforts to help GCU’s target market in existing and new states accumulate retirement savings. For example, the society launched a fixed index annuity product in October 2021, which has achieved significant sales growth, and which is expected to gradually enhance the percentage of annuity account value with surrender charge protection.

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