OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Trans World Assurance Company (TWA) (San Mateo, CA). The outlook revisions reflect TWA’s limited business profile, trend of contracting inforce business and A.M. Best’s view of the need for a more robust enterprise risk management (ERM) function.
The ratings reflect 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. TWA’s operating profile is highly interest rate sensitive and at risk of spread compression in the low interest rate environment given very high minimum guaranteed crediting rates on the majority of its side-fund and annuity deposits. Additionally, the investment portfolio holds a material allocation to affiliated holdings (mortgage loans and real estate) that are geographically concentrated and partially offset the company’s generally good liquidity profile.
Partially offsetting rating factors are TWA’s strong risk-adjusted capitalization, overall positive statutory net earnings in recent years, growth in capital and a high credit quality fixed income portfolio with minimal below investment grade bond exposure. Key factors that could result in a positive rating action include several years of sustained profitable growth in premium levels, inforce business metrics and capitalization, or enhanced ERM governance and demonstration of a formal ERM program with improved data quality and internal controls. Key rating factors that could result in a negative rating action include decreased risk-adjusted capitalization or deterioration in the investment risk profile.
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