OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating (FSR) of B+ (Good) and the Long-Term Issue Credit Ratings (Long-Term ICR) of “bbb-” of Nassau Life Insurance Company (NNY), Nassau Life and Annuity Company (NLA), Nassau Life Insurance Company of Kansas (Overland Park, KS) and Nassau Life Insurance Company of Texas (Austin, TX). All of the aforementioned entities, including an unrated entity, Nassau Re (Cayman) Ltd., which is used for internal reinsurance, are collectively referred to as the Nassau Insurance Group (Nassau). Concurrently, AM Best has affirmed the FSR of B (Fair) and the Long-Term ICR of “bb” of PHL Variable Insurance Company (PHL).
In addition, AM Best has affirmed the Long-Term ICR of “b+” of The Nassau Companies of New York, Inc., along with its existing Long-Term Issue Credit Ratings (Long-Term IRs). All companies are headquartered in Hartford, CT, unless otherwise specified.
The outlook of all of these Credit Ratings (ratings) is negative. (See below for a detailed listing of the Long-Term IRs.)
The ratings of Nassau reflect its statutory balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The negative outlook reflects the considerable operating losses at PHL Variable and the utilization of excess capital for the recent acquisition of Foresters Financial Holding Company, Inc. and Foresters Life Insurance and Annuity Company (FLIAC); each acquired from The Independent Order of Foresters and merged into NNY, which together have negatively impacted the capitalization and financial flexibility of its parent, Nassau Financial Group, L.P. (NFG). In addition, statutory operating results have trended downward at NNY due to increased mortality in its legacy life insurance business and a decrease in investment income due to a declining invested asset base, as well as investment yields that have been pressured by the low interest rate environment. AM Best notes that NNY has reported statutory net operating losses through the third quarter of 2020 due to the impact from the Covid-19 pandemic, including higher mortality and some volatility within its alternative investment portfolio, as well as non-recurring expenses over the last two years.
Statutory net income at NFG has been trending negatively in recent years due to ongoing adverse mortality in its legacy life businesses, portfolio yield compression, capital losses and non- recurring expenses. However, earnings and revenues have benefited from growth in fixed annuity sales and a modest amount of earnings related to its asset management and distribution segments. AM Best expects NFG’s earnings to trend positively once cost of insurance increases are implemented within its legacy life block. Earnings should also benefit from reduced expenses, an expected improvement in overall mortality at NNY and additional earnings from its acquisition of FLIAC over the near to medium-term.
Management has made significant progress in recent years streamlining operations, rebranding under the Nassau name, remediating a significant amount of material weaknesses that existed prior to its acquisition of the group and strengthening its ERM framework and capabilities.
In addition, the highly volatile business within PHL Variable has been ceded to a wholly-owned captive subsidiary that reinsures the total retained risk in PHL. Despite the reinsurance agreement, NFG and its subsidiaries could be negatively impacted if the captive entity does not perform as expected.
AM Best has withdrawn the ratings of PHL Variable as the company has requested to no longer participate in the AM Best interactive rating process.
The following Long-Term IRs have been affirmed with a negative outlook:
The Nassau Companies of New York, Inc.—
— “b+” on $300 million 7.45% senior unsecured notes, due 2032 (approximately $253 million outstanding)
Nassau Life Insurance Company—
— “bb-” on $175 million 7.15% surplus notes, due 2034 (approximately $126 million outstanding)
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