OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb” of American Fidelity Life Insurance Company (AMFI) (Pensacola, FL). The outlook for both ratings is stable.
The affirmation reflects AMFI’s favorable risk-adjusted capitalization, supported by a highly liquid investment portfolio with minimal below investment grade bond exposure and positive operating results, which have benefited from lower levels of statutory strain. In recent years, the company has protected its portfolio yield by increasing the allocation to investment grade corporate bonds and decreased its allocation to U.S. Treasury securities.
Partially offsetting factors are ongoing regulatory obstacles that are negatively impacting the marketing of the company's products on military bases, which has contributed to declining premium trends in recent years and a diminished business profile. Operating earnings continue to be pressured by low interest rates and generous policyholder crediting rates. Despite the lower levels of new business strain and recent shifts in the investment portfolio to improve the portfolio yield, A.M. Best believes that earnings will continue to be pressured. While the portfolio yield has remained fairly stable, the company's operating profile remains highly sensitive to spread compression, given the low interest rate environment and the significant proportion of annuity and side-fund deposits with high guaranteed minimum credit rates. Additionally, AMFI maintains sizable investments in affiliated mortgages, real estate, and equities that are viewed as less liquid and expose the company to geographic concentration risks.
Key rating factors that could result in a positive rating action include several years of sustained growth in premium levels and inforce business metrics, increased spreads between interest earned on investments and interest credited to policyholders, and improved cash flow testing / asset adequacy results. Key rating factors that could result in a negative rating action include a continued decline in net premiums written, decreased risk-adjusted capitalization, unfavorable performance within the mortgage portfolio causing material realized losses, and declining cash flow testing / asset adequacy results.
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 see A.M. Best’s Recent Rating Activity web page.
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