OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Primerica Life Insurance Company (Boston, MA) and its affiliates, National Benefit Life Insurance Company (New York, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario). Additionally, A.M. Best has affirmed the ICR of “a-” of Primerica Inc. (Primerica) (Duluth, GA), which is the holding company for the group’s insurance and non-insurance operating companies. A.M. Best also has affirmed the indicative debt ratings of “a-” for senior unsecured debt, “bbb+” for subordinated debt and “bbb” for junior subordinated debt and preferred stock, which may be issued under Primerica’s shelf registration. The outlook for all ratings is stable.
Primerica’s ratings recognize its status as one of the largest writers of term life insurance in the United States, with its strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, Inc. This integrated distribution and operating platform includes approximately 90,000 life agents at the end of the first quarter of 2012 and has been the primary driver of Primerica’s excellent historical operating performance. Primerica’s business profile is further reinforced by its experienced management team, which has successfully built and supported its sizable sales force.
Primerica’s earnings also have been consistent with A.M. Best’s expectations, as the group recorded GAAP net income of $157 million for year-end 2011. On a statutory basis, Primerica experienced an operating profit for year-end 2011, with the inclusion of ongoing income related to the Citigroup, Inc. reinsurance transactions (statutory accounting rules require that the gain on the reinsured business be deferred and recognized as income as earnings emerge). A.M. Best also notes that Primerica’s year-end 2011 GAAP financial leverage of 20% (excluding other comprehensive income) and GAAP interest coverage of almost 10 times remains well within the guidelines for the company’s current ratings.
After ceding 80%-90% of its inforce business to Citigroup, Inc. (which substantially reduced the group’s absolute levels of assets, reserves and surplus), Primerica’s year-end 2011 regulatory capital ratio declined significantly from 2010 levels. However, risked-based capitalization has improved at the end of the first quarter of 2012, through the creation of Peach Re, Inc, a domestic captive that funded Regulation XXX term life excess reserves on the December 31, 2009 in-force block not ceded to Citigroup, Inc. as well as on business issued in 2010.
Offsetting these positive rating factors is Primerica’s separation from Citigroup, Inc. and the associated reinsurance transactions, which have diminished its absolute capital position and earnings power. While A.M. Best expects the consolidated statutory earnings of the insurance operating companies to benefit from the use of its Peach Re, Inc. captive to fund Regulation XXX reserves, statutory capital growth may be somewhat constrained by dividend payments to the holding company.
A.M. Best believes Primerica is well positioned at its current rating level for the foreseeable future. Factors that could result in negative rating actions include a significant decline in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) model or net operating performance that does not meet A.M. Best’s expectations.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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