A.M. Best Affirms Ratings of Sterling Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Sterling Life Insurance Company (Sterling) (Chicago, IL). The outlook for both ratings is stable. Sterling is owned by Munich Health North America, Inc., the U.S. based subsidiary of the ultimate parent, Munich Reinsurance Company (Munich Re).

The ratings of Sterling reflect its continued profitability, good level of risk-based capitalization and the support of Munich Re. Offsetting factors include the company’s decline in underwriting performance, decreased membership and the uncertain future regulatory environment in the senior marketplace.

Sterling has posted positive underwriting and operating results since 2004; however, in 2008 and 2009 the level of earnings have tempered as the company experienced pressure on its medical loss ratio. Operating gains combined with moderation of revenue growth led to significant improvement in risk-based capitalization, from 251% (company action level) in 2008 to 329% in 2009. Munich Re’s ownership of Sterling promotes growth and assists in the company’s continuing effort to establish itself in the Medicare market. Sterling has been able to adjust to the changing Medicare marketplace by offering flexible products, such as private-fee-for-service plans. While, Munich Re has not contributed capital to Sterling in the past, A.M. Best expects Munich Re to provide additional capital to Sterling, if necessary.

Sterling’s underwriting margins declined to 0.3% in 2009 compared to 2.2% in 2007 and 11.7% in 2006. The company implemented rate increases for its Medicare Advantage products and eliminated several poor performing products from its portfolio in 2009. As a result, the company experienced a significant membership decrease during the year. While current government reimbursement rates remain favorable for Medicare Advantage, reductions stemming from proposed federal changes over the next few years could negatively impact Sterling’s future operating results.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.