OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Fidelity Life Association, a Legal Reserve Life Insurance Company (Fidelity Life) (headquartered in Chicago, IL). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Fidelity Life’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Vericity Inc. (Vericity) (Chicago, IL) [Nasdaq:VERY] became the direct holding company for Members Mutual Holding Company (Members Mutual) and its indirect subsidiaries, including Fidelity Life and eFinancial, LLC on Aug. 7, 2019, following a transaction that converted Members Mutual from a mutual to stock company, with all of its capital stock being acquired by Vericity. These ratings are based on the strategic financial business plan that was shared with AM Best.
Fidelity Life’s risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR), is forecasted to be at the strongest level over the near term, further driven by an initial public offering that raised gross proceeds of $148.7 million at the Veracity Inc. holding company level, which may be utilized for general corporate purposes, subject to completion of a capital needs assessment. The balance sheet assessment takes into account the conservative investment strategy, as well as the type of reinsurance arrangements in place with carriers. Reinsurance leverage remains high compared with industry trends as the company continues to utilize reserve financing as part of its capital structure.
AM Best considers the operating performance results to be adequate, as overall profitability has remained stable with material growth in life sales noted. There has been a continued trend in return on equity falling below the industry average, primarily driven by higher general insurance expenses, along with declining trends in net investment income due to the low interest rate environment. As the company deploys capital after completing its capital needs assessment, AM Best anticipates continued profitability and fairly strong premium growth at Fidelity Life.
Vericity has two operating subsidiaries — Fidelity Life Association and eFinancial, LLC, a call center-based insurance agency. Fidelity Life distributes life insurance products through eFinancial and other unaffiliated agents. The majority of net premiums come from ordinary life products, but with higher lapse rates than the industry average. The company targets strategic alliances with affinity partners for growth and value-added capital deployment. The company’s ability to execute upon its business plan will be a key factor going forward.
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