A.M. Best Upgrades Ratings of North Carolina Mutual Life Insurance Company

OLDWICK, N.J.--()--A.M. Best has upgraded the financial strength rating to B (Fair) from C+ (Marginal) and the issuer credit rating (ICR) to “bb+” from “b-” of North Carolina Mutual Life Insurance Company (NCM) (Durham, NC). The outlook for both ratings has been revised to stable from negative.

The rating upgrade reflects NCM’s significant improvements in absolute and risk-based capitalization and its business-model shift to a more fee-based profit stream. Financial results for full-year 2014 include a material increase in total capital, driven primarily by a new reinsurance treaty in which the majority of NCM’s life insurance in force was ceded to Southland National Insurance Corporation (Southland National). The net impact to capital at year-end 2014, including net income was an increase to capital and surplus of $14.7 million. On a risk-adjusted capital basis, the company’s capitalization ratios had declined sharply prior to 2014, but following the reported boost in capital, and the potential for a more predictable earnings stream from fee-based business, A.M. Best expects capitalization ratios to stabilize. In addition to the reinsurance transaction, the company has implemented expense-reducing initiatives over the past several years that should benefit earnings going forward.

Negative rating factors include a history of weak operating results, a sharp decline in the company’s admitted assets as a majority of its bond portfolio was ceded to Southland National in 2014 and a higher concentration in higher risk assets resulting from the reduction in NCM’s fixed income portfolio. Additionally, A.M. Best remains concerned over the uncertainty in the level of future earnings given the material shift in its business profile, which is largely untested.

A.M. Best believes positive rating movement for NCM may occur should the company meet its earnings projections and establish consistent profitability trends, while maintaining and improving risk-adjusted capitalization levels and total capital base. However, negative rating action may occur if the company were to experience earnings trends that do not meet A.M. Best’s expectations or if the company were to experience a material decline in capital.

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.

Key insurance criteria reports utilized:

  • A.M. Best's Liquidity Model for U.S. Life Insurers
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) 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 visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company
Joan Sullivan
Senior Financial Analyst
(908) 439-2200, ext. 5144
joan.sullivan@ambest.com
or
William Pargeans
Assistant Vice President
(908) 439-2200, ext. 5359
william.pargeans@ambest.com
or
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

Contacts

A.M. Best Company
Joan Sullivan
Senior Financial Analyst
(908) 439-2200, ext. 5144
joan.sullivan@ambest.com
or
William Pargeans
Assistant Vice President
(908) 439-2200, ext. 5359
william.pargeans@ambest.com
or
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com