OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa” for the life insurance subsidiaries of Western & Southern Financial Group, Inc. (WSFG). WSFG’s subsidiaries are The Western and Southern Life Insurance Company (WSLIC), Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company (Greenwich, NY) and its affiliate, The Lafayette Life Insurance Company (Lafayette Life) (collectively referred to as W&SF Group). Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). In addition, AM Best has affirmed the Long-Term ICR of “a” of WSFG and all Long-Term Issue Credit Ratings (Long-Term IR). All companies are domiciled in Cincinnati, OH, except where specified. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed list of the Long-Term IRs)
The ratings of W&SF Group reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
W&SF Group’s balance sheet assessment is categorized at the strongest level and reflects a very favorable risk-adjusted capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), which is enhanced by a high quality capital profile with no utilization of captives, or permitted accounting practices. While the overall investment portfolio is of good credit quality, exposure to below investment grade bonds, equities and asset-backed securities are higher than benchmarks; however, this risk is partially offset by much lower levels of mortgage exposure. Liquidity is strong, as measured by AM Best, and the financial flexibility at the holding company is viewed positively with modest financial and operating leverage and strong interest coverage. Finally, the ratings also recognize capital maintenance guarantees from WSLIC (excluding Gerber Life) to all insurance subsidiaries and its affiliate, Lafayette Life.
W&SF Group’s return on equity continues to be somewhat lower than industry aggregates due in part to strong capitalization levels, retention of redundant reserves and modest adjusted statutory profitability within the group’s ordinary life insurance line of business. Statutory operating performance has been somewhat volatile, while GAAP earnings have shown solid growth in all segments over the last six years. Statutory results reflect some new business strain as recent premium growth has been well-above industry averages. The group has high interest rate exposure given its reserve profile and a significant portion of earnings is driven by annuities, although investment spreads remain relatively stable. Given the concentration in annuities, there is the potential for disintermediation risk in a rapidly rising interest rate environment, although AM Best notes that growth has been strong within immediate annuities, which mitigates this concern. Disintermediation risk also is mitigated partially by adequate surrender charge protection.
W&SF Group’s business profile benefits from a highly diversified multichannel distribution, with an emphasis on middle market individuals, financial institutions and asset management. Recently, the group has expanded its distribution to Fidelity Investments, which is expected to enhance growth in annuities and add additional market share. Its acquisition of Gerber Life also will add direct-to-consumer distribution capabilities and create a better balance between life insurance and annuity sales. Finally, while W&SF Group has expanded its product footprint and improved some market positions, its overall market position in life insurance and annuities is still moderate and it faces ongoing competition from other companies in the highly competitive U.S. life and annuity market.
The ratings of Gerber Life reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect the recent capital support provided by WSFG to Gerber Life.
The following Long-Term IRs have been affirmed with a stable outlook:
Western & Southern Financial Group, Inc.
-- “a” on $500 million 5.75% senior unsecured notes due 2033
The Western and Southern Life Insurance Company
-- “a+” on $500 million 5.150% surplus notes due 2049
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