OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb” of Landmark Life Insurance Company (Landmark Life) (Brownwood, TX). The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect Landmark Life’s balance sheet strength, which A.M. Best categorizes as strong, as well as its marginal operating performance, limited business profile and weak enterprise risk management (ERM).
The company benefits from its strong balance sheet, which is mainly attributed to the very strong level of risk-adjusted capitalization, high quality of capital, and a conservative investment portfolio. Despite a low level of financial flexibility and the higher reinsurance leverage, Landmark Life has a favorable level of liquidity to meet its contractual obligations. There is a higher level of reinsurance dependence to support the new business strain, but the company’s goal is to ultimately retain 100% of the risk by 2020. The company has access to an external liquidity source, if needed, through its membership with the Federal Home Loan Bank, which has not been utilized.
Landmark Life has been consistently profitable in recent years, but with heavier reliance on its TPA fee income business, which is primarily reliant on a single insurance company client. Direct premium in its core ordinary life line have been flat to down in recent years, driven primarily by declining new business annualized premium. The decline in 2017 life sales was attributable to a termination of a less profitable tele-sales agency, while continuing to retain a higher percentage of profitable business.
Landmark Life is a stipulated premium life insurer with business mainly domiciled in Texas. The company’s ongoing insurance activities are fairly limited in scope and geographically concentrated, with virtually all life sales generated from a single agency. Landmark Life also maintains a $13 million closed block of individual flexible premium deferred annuities subject to 3% minimum interest rate guarantees. While currently profitable, it will likely be subject to further spread compression as interest rates remain low. A.M. Best also notes that Landmark Life’s ERM program is currently under development, and while key risks have been identified, quantification and tolerance levels are not yet fully developed.
The revised Long-Term ICR outlook reflects a significant improvement in risk-adjusted capitalization in 2017, driven primarily by a $680,000 statutory net operating gain. As Landmark Life continues to expand its operations, anticipated earnings from its TPA business should assist in augmenting modest projected earnings from its core life operations.
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