AM Best Withdraws Credit Ratings of Citizens Security Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (good) of Citizens Security Life Insurance Company (Citizens Security Life) (Louisville, KY). The outlook of these Credit Ratings (ratings) is stable. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.

The ratings reflect Citizens Security Life’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.

The ratings affirmation reflects Citizens Security Life’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). This is partially offset by the company’s relatively low level of absolute capital and surplus, as earnings are partially offset by consistent, discretionary dividends paid to the parent company, Citizens Financial Corporation (CFC). AM Best believes the elevated levels of stock and real estate in the investment portfolio expose the company to credit market investment risk, and the level of non-investment-grade fixed-income securities held exceeds the average for accident and health carriers.

Organizational debt held at CFC increased substantially in 2021, as has its consolidated net financial leverage ratio. AM Best believes this limits the organization's overall financial flexibility and fungibility of capital, and could lead to liquidity issues related to the planned debt servicing schedule. Also, CFC’s balance sheet also has a high and growing level of goodwill and intangible assets, which has resulted from (as with the debt) its acquisition-based business development strategy. Consolidated tangible net equity at CFC turned negative in 2021 and resulted in a negative assessment and drag on Citizens Security Life’s consolidated financial strength and ratings.

Growth in Citizens Security Life’s net premium in recent years was driven by new sales of individual dental and other ancillary products and bolstered by CFC’s acquisitions, which have correspondingly expanded marketing opportunities for Citizens Security Life's ancillary health insurance. The company has reported increasing underwriting gains and pre-tax net operating gains annually in recent years, with return on equity and return on revenue metrics exceeding those of other individual accident and health rating units with strong operating performance.

Citizens Security Life markets select ancillary health products to a relatively small niche segment of the senior citizen population, where it operates mainly in a unique market with its largest source of sales similar to a "captive" marketing model. Business is concentrated as dental products compose approximately two-thirds of net premium and the majority of the company’s direct premium is derived from five states. However, this concentration risk is somewhat offset by the fact that the company currently does not face significant competition in its specialized niche in the ancillary health insurance market.

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