OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to “bbb” from “bbb-” of New Era Life Insurance Company and its wholly owned life insurance subsidiaries, New Era Life Insurance Company of the Midwest and Philadelphia American Life Insurance Company, together known as the New Era Group. All companies are domiciled in Houston, TX. The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
New Era Life Insurance Company is a wholly owned subsidiary of New Era Enterprises, Inc., a privately owned insurance holding company. The organization has experienced considerable growth since its inception through acquiring distressed companies, and in particular has seen a surge in organic growth in the last decade. While historically focused on the senior segment, New Era Group in recent years has entered into the under-age-65 market, with hospital indemnity, accident, critical illness and GAP products to diversify its offerings beyond its core Medicare supplement, fixed annuity and life lines of business.
The upgrade reflects New Era Group’s positive trend of increasing absolute capital with a five-year compound annual growth rate of 9.7% and improvements in risk-adjusted capital. The ratings also reflect the company’s strong operating results, with return of equity measures of 9.1% in 2016; 10.0% in 2015; 17.5% in 2014; and 14.7% in 2013, which were driven by profitable underwriting and favorable net investment income results. However, results in 2016 were slightly impacted by new business surplus strain and higher-than-expected loss ratios related to the group’s cancer and Medicare supplement products, as well as unexpected high federal income tax. New Era Group’s improved risk-adjusted capital reflects the favorable operating trends, as well as favorable investment performance.
Partially offsetting these positive rating factors is New Era Group’s high level of investment exposure related to its commercial mortgage assets, residential mortgage-backed securities (RMBS), asset-backed securities and collateralized debt obligations (CDO) as a percentage of its total investment portfolio. The group’s intention has always been to hold most investments until maturity; thus, market fluctuations, although closely monitored, do not affect investment disposals. A.M. Best remains concerned with the group’s risk appetite related to short-term mortgages, which increased in 2016, and some high-risk assets, which include RMBS, CDOs and other below investment grade assets. The company’s potential credit exposure can be unfavorable in a volatile economic environment. A.M. Best also notes the company’s high level of interest-sensitive fixed annuities, which can be negatively impacted by spread compression.
This press release relates to Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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