OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Trans World Assurance Company (TWA) (San Mateo, CA). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings of TWA were placed under review on Oct. 13, 2017, in conjunction with the release of the updated Best’s Credit Rating Methodology (BCRM). The ratings have been removed from under review as A.M. Best has completed its analysis of TWA under the updated BCRM.
The ratings reflect TWA’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management. The balance sheet strength is supported by the company’s risk-adjusted capitalization being at the strongest level and a strong liquidity profile. The investment portfolio is viewed as being relatively higher risk due to the allocation of mortgage loans and real estate assets that are geographically concentrated, as well as the limited sector diversification of the bond portfolio. The balance sheet assessment also considers the financial position and modest financial leverage of its parent company, TWA Corporation.
TWA has reported favorable premium growth over the last two years due to increased sales of its universal life product; however, A.M. Best notes that the long-term premium trend is negative. While overall results remain positive, operating gains and return metrics are considered low. Additionally, spread margins on TWA’s deposit-type liabilities continue to decline due to high guaranteed crediting rates and a declining portfolio yield, which A.M. Best notes is below industry average.
The business profile is viewed as limited due to the company’s niche target market and limited product portfolio. Furthermore, the majority of the reserves are related to deposit-type contracts with higher guaranteed crediting rates, elevating the risk of spread compression. The company’s risk management is under-developed relative to A.M. Best’s expectations, although A.M. Best notes some progress made in the development of a risk framework. However, the framework is lacking comprehensive risk identification, quantification and adequate control structures. The company’s risk profile is viewed as high relative to its capabilities due to notable concentrations of the business profile, management responsibilities, and the investment portfolio.
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