AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Primerica Life Insurance Company (Nashville, TN) and its affiliates, National Benefit Life Insurance Company (Long Island City, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario), collectively referred to as Primerica Life. Additionally, AM Best has affirmed the Long-Term ICR of “a-” of Primerica, Inc. (Primerica) (headquartered in Duluth, GA) [NYSE: PRI], which is the holding company for the group’s insurance and non-insurance operating companies. AM Best also has affirmed the Long-Term Issue Credit Rating of “a-” on $375 million 4.75% senior unsecured notes due 2022 of Primerica. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Primerica Life’s balance sheet strength, which AM Best categorizes as very strong, as well as its very strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
Primerica Life’s ratings recognize the group’s continued risk-adjusted capitalization assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), along with the quality of its investments and favorable reserve profile, although allocation to NAIC class 2 bonds is higher than the industry average. Risk-adjusted capitalization ratios reflect a heavy reliance on captive reinsurance solutions to fund its Regulation XXX reserves associated with term life insurance, which gradually will moderate as new business is issued under principles-based reserving practices. The ratings also reflect strong liquidity, as well as solid financial leverage and interest coverage ratios that are within AM Best guidelines for these ratings.
AM Best believes that the quality of capital for an insurance operating company that has ceded XXX or AXXX reserves to a domestic or offshore captive is not as strong as for an operating company with similar risk-adjusted capital ratios that self-funds these reserves. The statutory capital growth of the operating insurance companies likely will be constrained by dividends to its ultimate parent, Primerica, which have been utilized to support higher levels of share repurchase.
Primerica Life’s earnings have been consistent with AM Best’s expectations, as the group continuously has generated solid levels of GAAP and statutory net income. There has been a continued adequate direct premium growth trend, offset by above-industry-average lapse rates. General expenses per policy also have been on an upward trend and have risen further in the current year. Statutory net income also has benefited from a reinsurance transaction entered into at the time of Primerica’s initial public offering in 2010, as statutory accounting rules require that the gain on the reinsured business be deferred and recognized as income as actual experience emerges. AM Best expects Primerica Life to maintain an underlying trend of statutory profitability of the insurance operating companies. Primerica Life’s operating profile benefits from non-insurance revenues that represent a substantial portion of overall GAAP revenues through the sale of mutual funds and other savings products, along with distribution of other manufacturers’ life and annuity products, which generates fee-based revenues and provides a source of earnings diversification.
Primerica Life’s ratings also recognize its status as one of the largest writers of term life insurance in the United States, with its continued strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, LLC. This integrated distribution and operating platform included over 130,000 life agents at the end of 2018. Primerica Life’s business profile in the United States and Canada is reinforced further by its experienced management team, which successfully built and supports its sizable sales force. Low agent retention levels require a high level of recruiting each year to maintain a competitive advantage. Offsetting these positive rating factors is Primerica Life’s somewhat narrow business profile focus on term life products, with generally stable persistency that is still in line with pricing.
AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.