OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” from “bb+” and affirmed the Financial Strength Rating (FSR) of B (Fair) of Standard Life & Casualty Insurance Company (Standard Life) (Salt Lake City, UT). The outlook of the Long-Term ICR has been revised to stable from negative, while the FSR outlook remains stable.
The Credit Rating (rating) downgrade reflects the reduction in risk-adjusted capital and surplus driven by realized capital and operating losses. In an attempt to rebalance the fixed income investment portfolio where Standard Life had high exposure to the oil and gas industry, the company experienced an unfavorable realized capital loss of $455 thousand. The sold bonds were at high risk of default and in loss positions, particularly those in the energy sector. Additionally, premium growth in Standard Life’s life and home health care products accelerated through nine months ending Sept. 30, 2016. The high costs associated with adding first-year premium have resulted in operating losses totaling $527 thousand through the third quarter of 2016.
Partially offsetting these negative rating factors is a significant reduction in the company’s unrealized loss position from almost $3 million at year-end 2015 to about $118 thousand through the third quarter of 2016 as a result of rebalancing the fixed income investment portfolio. Additionally, Standard Life has a well-established distribution network that includes solid relationships with Independent Marketing Organizations and brokers, which contract with captive and semi-captive agents. These relationships have proven to be successful in reversing a declining premium trend prior to 2014, and premium revenue has increased strongly through its most recently reported financial statements.
A positive change in ratings could occur if Standard Life experiences a stable trend of premium and earnings growth. A negative rating action could occur if there is further reduction in its risk-adjusted capital, losses continue or financial leverage increases.
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