A.M. Best Revises Outlook to Stable for Ratings of Funeral Directors Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit rating (ICR) of “a-” of Funeral Directors Life Insurance Company (FDLIC) (Abilene, TX). Concurrently, A.M. Best has affirmed the B+ (Good) FSR and “bbb-” ICR of FDLIC’s subsidiary, Kentucky Funeral Directors Life Insurance Company (KFDLIC) (Lexington, KY). The outlook for KFDLIC’s ratings is stable.

“Risk Management and the Rating Process for Insurance Companies”

The rating actions reflect FDLIC’s favorable operating performance, successful growth in new business written and improved risk-adjusted capitalization. The company’s capital position has benefited from overall profitable operating results over the last five years and the lack of dividend requirements from its parent. FDLIC has continued to build its pre-need franchise through additional funeral home relationships and general agencies, as well as from controlled geographic expansion.

FDLIC further expanded its pre-need market presence in recent years through the development of a strategic alliance with certain funeral home clients. A.M. Best believes that the growth rate of new business sales may moderate somewhat over the near term due to the sluggish economy and competitive market environment for pre-need products.

Partially offsetting these positive rating factors is the fact that FDLIC’s risk-adjusted capital ratios remain somewhat low relative to similarly rated peer companies despite the increases in absolute capital and surplus. A.M. Best notes that the company’s risk-adjusted capital ratios are negatively impacted by the fact that it has been writing more of its pre-need business in the form of deferred annuities (without surrender charges) than its competitors who focus primarily on life insurance products. A.M. Best also notes that the company has recently increased the duration of its fixed-income securities portfolio which increases the potential for large fluctuations in market value if interest rates should spike or if corporate credit spreads begin to widen.

The ratings of KFDLIC reflect its adequate risk-adjusted capitalization and positive operating results over the past five-year period. KFDLIC serves as the marketing arm for FDLIC in the state of Kentucky. However, this profile subjects it to the regulatory risks of a single state, as well as fluctuations from a small regional economy. A.M. Best notes that KFDLIC's originally anticipated new business growth has not met expectations.

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”; “Understanding BCAR for Life and Health Insurers” and “Rating Members of Insurance Groups”. Methodologies can be found at www.ambest.com/ratings/methodology.

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