OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Primerica Life Insurance Company (Boston, MA), and its affiliates, National Benefit Life Insurance Company (Long Island City, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario), collectively referred to as Primerica Life. Additionally, A.M. Best also has affirmed the Long-Term ICR of “a-” of Primerica, Inc. (Primerica) (headquartered in Duluth, GA) [NYSE:PRI], which is the holding company for the group’s insurance and non-insurance operating companies. A.M. Best also has affirmed the Long-Term Issue Credit Rating of “a-” on $375 million 4.75% senior unsecured notes due 2022 of Primerica. The outlook of these Credit Ratings (ratings) is stable.
Primerica Life’s ratings recognize its status as one of the largest writers of term life insurance in the United States, with its continued strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, Inc. This integrated distribution and operating platform included approximately 117,000 life agents at the end of 2016. Primerica Life’s business profile in the United States and Canada is further reinforced by its experienced management team, which successfully built and supports its sizable sales force.
Primerica Life’s earnings have been consistent with A.M. Best’s expectations, as the group has generated solid levels of GAAP and statutory net income as margins have benefited from favorable mortality experience relative to historical pricing expectations. Statutory net income also has benefited from the inclusion of ongoing income related to the reinsurance transactions entered into at the time of Primerica’s initial public offering in 2010, as statutory accounting rules require that the gain on the reinsured business be deferred and recognized in income as actual experience emerges. A.M. Best also notes that Primerica Life’s GAAP financial leverage and interest coverage ratios are within A.M. Best’s guidelines for its current rating level.
The level of Primerica Life’s risk-adjusted capitalization, as defined by Best’s Capital Adequacy Ratio (BCAR), is sufficient to support its current business and insurance risks. A.M. Best notes that risk-adjusted capitalization had been declining prior to 2015, driven primarily by significant dividends to the holding company. However, risk-adjusted capitalization has stabilized over the past two years. Going forward, A.M. Best expects risk-adjusted capitalization ratios to continue to remain relatively stable. A.M. Best also notes that Primerica Life has relied heavily in recent years on captive reinsurance to fund its Regulation XXX reserves associated with term life insurance, which in turn has benefited the group’s risk-adjusted capitalization.
Offsetting these positive rating factors are Primerica Life’s somewhat narrow business profile and aggressive capital management strategy. As noted above, Primerica Life has relied heavily on captive reinsurance to fund its XXX reserves. As part of its assessment of a life insurance company’s balance sheet strength, A.M. Best considers not only the capital adequacy ratios, but also the quality of capital supporting such ratios.
A.M. Best believes that the quality of capital for an insurance operating company that has ceded XXX or AXXX reserves to a domestic or offshore captive is not as strong as for an operating company with similar risk-adjusted capital ratios that self-funds these reserves. In addition, while A.M. Best expects Primerica Life to maintain an underlying trend of statutory profitability, statutory capital growth of the insurance operating companies likely will be constrained by continued aggressive dividend payments to Primerica. Additionally, within the insurance business unit there is essentially a monoline product approach with an exclusive focus on term life products.
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