OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of William Penn Association (WPA or Association) (Pittsburgh, PA).
The revised outlook reflects the Association’s improved risk-adjusted capitalization and reduced concentration of premiums related to fixed annuities. Furthermore, WPA has reported consistently increasing net operating gains and net income, which led to growth in unassigned funds.
The Association maintains a long history in the fraternal marketplace and strong persistency resulting from the loyal nature of its member base, which somewhat mitigates the limited surrender protection on its annuities. The Association has improved its risk profile in recent years by discontinuing annuities with no surrender charge protection, adding five and nine year surrender charge periods and lowering the minimum guaranteed crediting rate to one percent on new sales.
Partially offsetting these positive rating factors are WPA’s concentrated exposure to interest sensitive fixed annuities, high proportion of annuities with high guaranteed rates and the related risk of spread compression, as well as a limited business profile including geographic and business concentration risks. To maintain favorable yield spreads on its annuity policies, the investment portfolio has purchased long-term bonds which may expose the Association to disintermediation risk in a rising interest rate environment as the majority of annuity contracts are not subject to surrender charges. A.M. Best notes, however, this risk is mitigated by WPA’s high crediting rates and strong retention experience.
Following the revised outlook, positive rating actions are unlikely in the near term. Factors that could lead to negative rating actions include further concentration risk to WPA’s business profile in interest sensitive annuities with high guaranteed crediting rates, spread compression leading to an unfavorable trend in operating results, increased extension risk within the fixed income portfolio or declines in its risk-adjusted capitalization.
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.
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