A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Primerica Life Insurance Company (Boston, MA), and its affiliates, National Benefit Life Insurance Company (New York, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario), collectively referred to as Primerica Life. Additionally, A.M. Best has affirmed the ICR of “a-” of Primerica, Inc.(Primerica) (headquartered in Duluth, GA), which is the holding company for the group’s insurance and non-insurance operating companies. A.M. Best also has affirmed the issue rating of “a-” on $375 million 4.75% senior unsecured notes due 2022 of Primerica. The outlook for each of these ratings is stable.
Primerica Life’s ratings recognize its status as one of the largest writers of term life insurance in the United States, with its strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, Inc. This integrated distribution and operating platform included more than 106,000 life agents at the end of 2015. Primerica Life’s business profile in the United States and Canada is further reinforced by its experienced management team, which successfully built and supports its sizable sales force.
Primerica Life’s earnings have been consistent with A.M. Best’s expectations, as the group has generated solid levels of GAAP and statutory net income as margins have benefited from favorable historical trends in mortality. Statutory net income also has benefited from the inclusion of ongoing income related to the Citigroup Inc.reinsurance transactions, as statutory accounting rules require that the gain on the reinsured business be deferred and recognized in income as actual experience emerges. A.M. Best also notes that Primerica Life’s GAAP financial leverage and interest coverage ratios are within A.M. Best’s guidelines for its current rating level.
The level of Primerica Life’s risk-adjusted capitalization, as defined by Best’s Capital Adequacy Ratio (BCAR), is sufficient to support its current business and insurance risks. A.M. Best notes that risk-adjusted capitalization has declined in recent years but increased in 2015. However, these declines were anticipated and primarily driven by significant dividend payments to the holding company. Going forward, A.M. Best expects risk-adjusted capitalization ratios to remain relatively stable. A.M. Best also notes that Primerica Life has relied heavily in recent years on captive reinsurance to fund its Regulation XXX reserves associated with term life insurance, which in turn has benefited the group’s risk-adjusted capitalization. A.M. Best also expects that the NAIC’s anticipated implementation of Principles Based Reserving in 2017 will ameliorate Primerica Life’s dependency on captive funding of term reserves associated with new business.
Offsetting these positive rating factors are Primerica Life’s somewhat narrow business profile, and aggressive capital management strategy. As noted above, Primerica Life has relied heavily on captive reinsurance to fund its XXX reserves. As part of its assessment of a life insurance company’s balance sheet strength, A.M. Best considers not only the capital adequacy ratios, but also the quality of capital supporting such ratios.
A.M. Best believes that the quality of capital for an insurance operating company that has ceded XXX or AXXX reserves to a domestic or offshore captive is not as strong as for an operating company with similar risk-adjusted capital ratios that self-funds these reserves. In addition, while A.M. Best expects Primerica Life to maintain an underlying trend of statutory profitability, statutory capital growth of the insurance operating companies likely will be constrained by continued dividend payments to Primerica.
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 Activity web page.
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