AM Best Assigns Preliminary Credit Assessment to Federal Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has assigned a Preliminary Credit Assessment (PCA) to Federal Life Insurance Company (Fed Life) (Riverwoods, IL) with a Financial Strength Assessment of A- pca (Excellent) and a Long-Term Issuer Credit Assessment of “a-” pca (Excellent). The outlook assigned to this PCA is stable.

The PCA reflects Fed Life’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The PCA also reflects AM Best’s assessment that, based on Fed Life’s business plan, the company will build and maintain a balance sheet assessment of very strong supported by risk-adjusted capitalization also at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR). Capital contributions in 2023 and retained earnings through the forecast period are expected to support net premium growth. Direct premium growth is expected to be relatively rapid based on projections, but capital at Fed Life is anticipated to be managed through the use of affiliated reinsurance and capital infusions as necessary. Financial flexibility is viewed as positive as the company has access to additional capital at the holding company level (Federal Life Group, Inc.), and from its ultimate parent organization, Insurance Capital Group, LLC (ICG). The holding company itself has access to additional capital from the ultimate owner, ICG. Investment risk is projected as low but may increase to moderate depending on the evolution of the liability profile of the company, which could impact future balance sheet metrics.

The adequate operating performance assessment and the neutral business profile assessment are based on Fed Life’s business plans presented to AM Best. The plan includes an expectation of rapid premium growth and improving operating profitability that supports an adequate operating performance assessment. In addition, it also includes the introduction of additional products, which in combination with a larger and more geographically diversified premium base, would support a neutral business profile assessment. Should Fed Life materially underperform its business plan these assessments would no longer be supported. An ERM structure has been established and is expected to evolve alongside the product risks and operational complexity of the business.

Fed Life, originally incorporated in 1899 and mutualized in 1962, was demutualized in 2018 and under its new ownership is focused now on a portfolio of accident and health, as well as life and annuity (L/A) products, which it plans to market nationwide. The company engaged a largely new management team in 2022 and 2023 to support the plan, and introduced its first new product, a hospital indemnity product, in 2022. Additional new products are in development to supplement the company’s hospital indemnity product and legacy L/A book of business. Rapid premium growth in 2022 and 2023 evidence early successes of the plan; however, successful launches of new products and further development of distribution are key to realizing the growth and expansion milestones presented to AM Best.

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