OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb+” of Illinois Mutual Life Insurance Company (Illinois Mutual) (Peoria, IL). The outlook has been revised to negative from stable.
The rating actions reflect A.M. Best’s concerns over the large decline in Illinois Mutual’s reported surplus in 2010, modest risk-adjusted capital position, remaining level of risk within its investment portfolio and limited financial flexibility.
Due primarily to impairments and realized losses in both its corporate fixed income and structured securities portfolios, Illinois Mutual recorded a 17% reduction in its surplus level through the first half of 2010. However, the majority of realized losses were the result of the company’s active strategy to improve the quality of risk-adjusted capitalization. This decline in surplus was beyond A.M. Best’s expectations and represents a continuation in a pattern of declining capital levels. Although Illinois Mutual has recognized impairments in each of the last three years, A.M. Best notes that the company may be subject to additional, yet limited, write-downs in its remaining structured assets, further stressing its capital position. This concern is reflected in the negative outlook.
Illinois Mutual’s exposure to commercial mortgage loans, although the portfolio is currently performing well and while its outstanding balance has reduced, represents an area of potential stress given the challenges in the commercial mortgage lending arena. Impairments to date have been modest.
Illinois Mutual’s ratings continue to recognize its consistently positive net gains from its operations, diversified lines of business, growing life insurance business and continuing profitable niche in the disability insurance marketplace. Illinois Mutual has taken proactive steps in reducing unit costs and managing the remaining risk within its structured product portfolio.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies” and “Understanding BCAR for Life and Health Insurers.” Methodologies 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.