OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa+” of Guardian Life Insurance Company of America (Guardian Life) (headquartered in New York, NY) and its core subsidiaries, Guardian Insurance & Annuity Company, Inc. (Wilmington, DE) and Berkshire Life Insurance Company of America (Pittsfield, MA) (together referred to as Guardian). Concurrently, A.M. Best has affirmed the Long-Term Issue Credit Ratings (Long-Term IR) of “aa-” on Guardian Life’s existing surplus notes.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” of Premier Access Insurance Company (PAIC), Access Dental Plan (ADP) (both domiciled in Sacramento, CA) and First Commonwealth Insurance Company (Chicago, IL), the primary dental subsidiaries of Guardian Life. The outlook of these Credit Ratings (ratings) is stable.
The ratings of Guardian reflect the organization’s sound capital structure, its strong market position and trend of strong operating gains. Guardian maintains an excellent level of risk-adjusted capital. Furthermore, Guardian has accessed capital through the issuance of surplus notes as needed to support its business, with its unadjusted debt-to-capital ratio of 16.3%, which remains prudent, and statutory interest coverage is adequate at over eight times. In addition, Guardian maintains a relatively conservative investment portfolio, adequate reserving and strong risk management practices, lending to its balance sheet strength. Guardian has a strong market position across its core ordinary life, individual disability and group employee benefits businesses.
Furthermore, the organization has maintained strong pre-tax, pre-policyholder dividend operating gains, with strong profitability ratios over the past several years. These results have been led by Guardian’s sizable and mature participating ordinary life insurance business, but statutory earnings have been favorable and positive across all core lines. As a result, Guardian continues to generate steady operating earnings and cash flows across its various life, and accident and health segments despite challenges such as the low interest rate environment, regulatory challenges and morbidity spikes. The organization has experienced favorable operating results in its group insurance business due to good underwriting fundamentals and expense initiatives.
Guardian continues to invest in future growth through management strategies such as its branding initiative, continued adjustments to its product offerings and design, technology advancements focused on the end consumer, and strengthening its core distribution channels – career agency force, general agents and brokers. This has resulted in steady aggregate premium growth in most years leading up to 2016. For the current year, while premium growth has been strong across its core product lines, revenue in aggregate has declined due to a combination of factors, including the general impact of the DOI Fiduciary Rule on annuity sales, the cessation of sales of its internally manufactured variable annuity products with guaranteed benefits, and the sale of its 401K business. While this has had a temporary impact on total premium, Guardian management expects that over the long term the move away from interest-sensitive products will have a positive effect on it earnings and limit margin compression caused by these products.
Partially offsetting these positive rating factors are heightened competition in its core blocks of business, margin pressure in its interest-sensitive lines and its exposure to higher risk alternative assets. However, the general decline in Guardian’s participating whole life sales in recent years was reversed in 2016, with Guardian reporting an increase in new sales. A.M. Best notes that the individual life insurance market remains highly competitive. Guardian’s investments in systems, infrastructure, personnel and strategic initiatives, also have resulted in sales growth in Guardian’s individual disability and group benefits segments, including its dental and worksite product offerings in 2016. Overall revenue continues to grow as a result of premiums expansion, and the addition of new and growing fee-income businesses. The persistent low interest rate environment has led to spread compression in Guardian’s block of variable and interest-sensitive life and annuity products, which has resulted in margin pressure. Furthermore, A.M. Best notes that while Guardian’s portfolio is mostly conservative and well-diversified, the organization maintains a modest exposure to alternative higher risk assets, including joint venture partnerships, high-yield bonds and real estate-linked assets relative to capital and surplus.
Concurrently, A.M. Best has withdrawn the ratings of PAIC and ADP at Guardian’s request.
The following Long-Term IRs have been affirmed:
Guardian Life Insurance Company of America—
-- “aa-” on $400 million 7.375% surplus notes due 2039
-- “aa-” on $450 million 4.875% surplus notes due 2064
-- “aa-” on $350 million 4.85% surplus notes due 2077
The Long-Term ICR of “aa+” of Guardian Life Global Funding has been affirmed with a stable outlook.
Guardian Life Global Funding – “aa+” program rating
--“aa+” on all outstanding notes issued under the program
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