A.M. Best Removes From Under Review and Affirms Ratings of Protective Life Corporation and Its Subsidiaries
January 26, 2015 by A. M. Best
A.M. Best Removes From Under Review and Affirms Ratings of Protective Life Corporation and Its Subsidiaries
Oldwick – A.M. Best has removed from under review with negative implications and affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the primary life insurance subsidiaries of Protective Life Corporation (Protective) (Birmingham, AL). Concurrently, A.M. Best has removed from under review with negative implications and affirmed the ICR of “a-” and existing debt ratings of Protective. The above ratings have been assigned a stable outlook.
Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-“of Protective’s asset protection subsidiary, Lyndon Property Insurance Company (Lyndon) (St. Louis, MO). The outlook for Lyndon’s ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The ratings of Protective and its life subsidiaries were placed under review following the announcement that it had entered into a definitive agreement for the sale of 100% of its outstanding stock to The Dai-ichi Life Insurance Company, Limited (DL) (Tokyo, Japan). A.M. Best has since performed an in-depth evaluation of DL and has provided a public opinion as to the organization’s financial strength (see separate press release dated Jan. 23, 2015). This included discussions with DL’s management team regarding its rationale for acquiring Protective and plans for integration. Historically, DL had no insurance presence in the United States and has been actively purchasing companies outside of Japan in an effort to expand globally and to mitigate the slow growth rate of the Japanese life insurance market.
A.M. Best does not expect Protective’s operating profile, senior management or capitalization to change materially as a result of the acquisition. The transaction has all the necessary regulatory approvals and is expected to close effective Feb. 1, 2015.
Protective’s ratings continue to reflect its favorable operating results and diversified business profile. Protective’s earnings have been steady on both a statutory and GAAP accounting basis with the annuity segment benefitting from rising equity markets and the life insurance segment experiencing favorable mortality results over the past year. A.M. Best notes that Protective’s acquisition segment has also performed well in recent years, with the last several acquisitions exceeding pricing expectations and being immediately accretive to earnings. While Protective maintains a relatively high level of interest sensitive reserves, the company has preserved solid interest rate spreads by actively managing crediting rates. However, earnings may be pressured somewhat over the near to medium-term should interest rates remain at current levels.
The ratings also acknowledge Protective’s superior risk-adjusted capitalization and strong risk management capabilities as demonstrated by the general reduction of risk throughout the organization in recent periods and its emphasis on asset/liability management. A.M. Best notes that Protective maintains a relatively high level of intangible assets on its balance sheet at just under 100% of stockholders’ equity (excluding accumulated other comprehensive income) as of Sept. 30, 2014, and relies heavily on the use of captives to fund Regulation XXX and Guideline AXXX (AG38) reserves in order to mitigate capital volatility driven by its life insurance business. Additionally, Protective maintains above-average financial and operating leverage –approximately 30% and 18%, respectively. A.M. Best believes the company’s strong and consistent operating cash flows, liquid investment portfolio and demonstrated financial flexibility in recent years have partially mitigated this concern. Moreover, A.M. Best believes Protective’s financial flexibility will be enhanced by DL’s strong capitalization and diversified business profile.
While A.M. Best believes the potential for positive rating actions on Protective is limited in the near to medium-term, negative rating actions could occur due to unfavorable trends in earnings, a material shift in strategy, or a significant decline in risk-adjusted capitalization due to larger-than-expected stockholder dividends to its new parent.
For a complete listing of Protective Life Corporation and its subsidiaries’ FSRs, ICRs and debt ratings, please visit Protective Life Corporation.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
•A.M. Best’s Liquidity Model for U.S. Life Insurers
•A.M. Best’s Perspective on Operating Leverage
•Analyzing Insurance Holding Company Liquidity
•Equity Credit for Hybrid Securities
•Insurance Holding Company and Debt Ratings
•Rating Funding Agreement-Backed Securities
•Rating Members of Insurance Groups
•Rating Run-Off Insurers and Specialists
•Risk Management and the Rating Process for Insurance Companies
•Understanding BCAR for U.S. and Canadian Life/Health Insurers
•Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
