OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A++ (Superior) and issuer credit rating of “aa+” of Knights of Columbus (the Order) (New Haven, CT). The outlook for both ratings is stable.
The ratings of the Order reflect its strong fraternal and insurance presence within the Catholic communities in the United States and Canada, its strong risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio and its consistently positive statutory operating results. The Order’s aggregate statutory operating performance is favorable, with the majority of earnings generated from its core ordinary life segment, which is enhanced by favorable persistency due in part to the loyal nature of the Order’s members and improved agent productivity. The Order has a strong affinity with its large membership base through its charitable programs and competitive portfolio of life insurance and annuity products. A.M. Best believes that fraternal programs in other countries such as the Philippines, Poland, Mexico, Panama, Ukraine, Lithuania, the Dominican Republic, Guatemala, the Bahamas, and Saipan could continue to add to the Order's new membership growth going forward.
Somewhat offsetting these strengths are the challenges the Order faces in the low interest rate and relatively tight spread environment, which has caused a duration mismatch in asset liability management and a decrease in its risk-based capitalization. However, the Order has utilized a strategy of purchasing a blend of longer dated bonds to shorten the duration mismatch and is utilizing private placements to enhance portfolio yield. The Order also has a modest exposure to residential and commercial mortgage-backed securities, which are approximately 20% of the bond portfolio; however, a majority of the mortgage-backed securities are in agency-backed investments. A.M. Best notes that the Order’s insurance membership growth has been modest relative to its overall membership base and resources. The increasing competition from large commercial life insurers and the Order’s limited distribution channels may be viewed as limiting factors in achieving higher insurance growth on a consistent basis. Nonetheless, A.M. Best believes the Order enjoys a formidable competitive position relative to other Catholic-based fraternal societies in the United States and Canada.
A.M. Best believes that positive movement in Knights of Columbus issuer credit rating is not likely in the near to mid- term. Key rating drivers that may lead to negative rating actions include sustained deterioration in the order's operating performance or weakened operating results, capital erosion due to investment losses or heightened risk appetite.
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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