|[May 19, 2010]
A.M. Best Revises Outlook to Negative for Employees Life Company (Mutual)
OLDWICK, N.J. --(Business Wire)--
A.M. Best Co. has revised the outlook to negative from stable and
affirmed the financial strength rating of B+ (Good) and issuer credit
rating of "bbb-" of Employees Life Company (Mutual) (ELCO) (Lake
The revised outlook is based on ELCO's fluctuating levels of capital and
surplus in recent years, as well as concerns regarding the company's
ability to appropriately manage the capital requirements and other risks
associated with its recent annuity premium growth. A.M. Best notes that
the company's risk-adjusted capital position declined significantly from
year-end 2008 to year-end 2009 due to a substantial increase in annuity
premiums generated during 2009. As a result, ELCO recently entered into
a reinsurance agreement to cede just under one-fourth of its deferred
annuity reserves in order to mitigate the impact of 2009 annuity sales
on both absolute and risk-adjusted capital. While statutory earnings and
surplus were bolstered as a result of the reinsurance transaction, A.M.
Best remains concerned about continued elevated annuity sales relative
to ELCO's capital base.
The rating affirmations reflect ELCO's well-established and market
focused distribution channel, its demonstrated ability to profitably
grow in its choen markets and its currently sufficient level of
risk-adjusted capital as a result of the aforementioned reinsurance
transaction. ELCO's current focus is on expanding sales of both its
annuity and pre-need products. Annuity production is centered on the
senior market. Elder care attorneys provide deposit type single premium
annuity sales, while most deferred annuities are distributed by
independent general agents. Annuity sales have increased substantially
in recent periods with the introduction of new deferred annuity products
with multi-year guaranteed interest rates.
While ELCO's earnings remain positive, profitability has generally
declined over the last few years due to a number of non-recurring items
and recent statutory strain from the increase in annuity sales. The
company's earnings have been primarily derived from profits on the life
and annuity inforce business, largely driven by investment income. A.M.
Best believes net operating gains may increase modestly in the near term
due to increasing sales of both annuities and pre-need life insurance
products, along with improving yields in its investment portfolio.
For Best's Credit Ratings, an overview of the rating process and rating
methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including
any additional methodologies and factors that may have been considered,
can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit
rating organization dedicated to serving the financial and health care
service industries, including insurance companies, banks, hospitals and
health care system providers. For more information, visit www.ambest.com.
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