A.M. Best Affirms Ratings of Merit Life Insurance Co. and Yosemite Insurance Company

OLDWICK, N.J.--()--A.M. Best has affirmed the financial strength rating of B (Fair) and the issuer credit ratings (ICR) of “bb+” of Merit Life Insurance Co. (Merit Life) and Yosemite Insurance Company (Yosemite), both indirect wholly owned subsidiaries of Springleaf Holdings, Inc. (Springleaf) [NYSE:LEAF]. Springleaf is headquartered in Evansville, IN. The outlook for all ratings is stable.

The ratings of Merit Life and Yosemite reflect the drag of its immediate parent, Springleaf Finance Corp. (SFC), a below investment grade consumer finance company, whose operating flexibility and business profile had been challenged by the credit crisis and the subsequent difficult macroeconomic environment. While A.M. Best notes that SFC has made progress in recent periods in repaying near-term debt, raising capital through a variety of methods and extending its liquidity runway, 2017 debt maturities remain elevated. In addition, the planned acquisition of OneMain Financial Holding, Inc. (OneMain), which was announced in March 2015, will initially increase the organization’s debt burden while reducing available liquidity.

Merit Life is the key underwriting subsidiary focused on the credit life and accident business within the enterprise. The company also writes term life, accidental death and dismemberment (AD&D) and disability income protection policies. A.M. Best notes that premiums have increased noticeably in recent periods due to the improving economy and increased lending activity at SFC. However, A.M. Best believes that Merit Life’s core credit lines of business could be challenged if there is a further deterioration in the credit profile of SFC. While Merit Life’s absolute level of capital and surplus has exhibited a declining trend over the past few years due to significant dividends, the company continues to maintain an adequate level of risk-adjusted capitalization. Moreover, Merit Life has recently reduced its exposure to less-liquid and higher-risk assets in its general account investment portfolio, and maintains adequate liquidity to meet its insurance obligations.

While Merit Life’s premiums have been growing, statutory operating results have been declining due to declining investment yields and a reduced invested asset base, resulting from the aforementioned dividends. Additionally, statutory strain from the increase in new business has impacted operating performance. Going forward, Merit Life’s statutory profitability will be pressured as sales are expected to continue to grow at a healthy rate. A.M. Best notes that the company continues to report solid GAAP earnings.

The stand-alone attributes of Yosemite are favorable in terms of its strong risk-adjusted capitalization, liquidity and consistent underwriting and operating profitability derived from its credit insurance operations. Yosemite maintains a level of risk-adjusted capitalization that is supportive of its ratings and continues to produce operating results that significantly outperform its peer composite. Yosemite also maintains liquidity measures above composite averages. The advantages and disadvantages of the company’s captive relationship with SFC were additional factors considered in the ratings, which contemplate the potential for any future operational disruption due to Yosemite’s dependence on SFC as its sole source of business and distribution channel. Future financial constraints also were considered in terms of dividends, as these may stress the capital levels needed to support continued growth.

Merit Life and Yosemite will be closely monitored for any adverse impact from SFC’s financial condition, notably its ability to meet upcoming debt maturities and execute on the planned acquisition of OneMain.

Rating factors that could cause future positive or negative rating changes or outlook revisions for Merit Life and Yosemite are primarily influenced by SFC’s financial condition, which is largely tied to its ability to meet upcoming debt maturities and secure long-term funding. However, a continued decline in capital and surplus at the insurance companies, if extraordinary stockholder dividends continue to be paid, may also result in negative ratings pressure.

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.

Key insurance criteria reports utilized:

  • A.M. Best’s Liquidity Model for U.S. Life Insurers
  • Evaluating Non-Insurance Ultimate Parents
  • Rating Members of Insurance Groups
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for Property/Casualty Insurers
  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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 © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company, Inc.
Michael Adams, 908-439-2200, ext. 5133
Senior Financial Analyst—L/H
michael.adams@ambest.com
or
Jason DuHaime, 908-439-2200, ext. 5623
Associate Financial Analyst—P/C
jason.duhaime@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best Company, Inc.
Michael Adams, 908-439-2200, ext. 5133
Senior Financial Analyst—L/H
michael.adams@ambest.com
or
Jason DuHaime, 908-439-2200, ext. 5623
Associate Financial Analyst—P/C
jason.duhaime@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com