OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength of A- (Excellent) and the issuer credit rating of “a-” of EMC National Life Insurance Company (EMCNL) (Des Moines, IA). The outlook for both ratings is stable.
The rating affirmations reflect EMCNL’s strategic value to Employers Mutual Casualty Company (EMCC), a regional multi-line property/casualty mutual company. Additionally, the synergies provided by EMCNL’s affiliation with EMCC to market life, annuity and workplace products to EMCC’s property/casualty customer base are complementary to its non-affiliated life only channels. A.M. Best believes EMCNL’s risk-adjusted capitalization is more than sufficient to support its business, investment and insurance risks. The company’s investment portfolio is considered very liquid and of good credit quality, with most of its holdings in investment grade bonds. In addition, EMCNL has recorded net operating gains, albeit trending lower in recent years.
Offsetting rating factors include EMCNL’s high percentage of interest-sensitive reserves, which is above the industry average. The company remains exposed to the risk of spread compression if low interest rates persist and disintermediation risk if interest rates rise, as a significant amount of its fixed annuity reserves lack surrender protection. EMCNL also has a high allocation to structured securities as a percentage of capital. Furthermore, the company has sustained operating losses related to growing its workplace business, which remains highly competitive.
EMCC owns 49% of EMCNL’s voting common stock (69.34% of the economic ownership when non- voting common stock is included). The lack of majority voting control results in a deviation of A.M. Best’s “Rating Members of Insurance Groups” methodology. However, this deviation is mitigated by common management on the board of directors, (both EMCNL and EMCC presidents are members) and the level of integration between the two companies with shared resources (investment, accounting, marketing and human resources) act to support both entities within the group.
Positive rating movement for EMCNL is unlikely in the near term. Factors that may result in negative rating actions include a significant or sustained decline in the company’s risk-adjusted capitalization, unfavorable trends in operating performance and/or a material change in the strategic role of EMCNL to EMCC.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.