A.M. Best Affirms Ratings of Primerica, Inc. and Its Subsidiaries

Business Wire, June 27, 2014

A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Primerica Life Insurance Company (Primerica Life) (Boston, MA) and its affiliates, National Benefit Life Insurance Company (New York, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario). Additionally, A.M. Best has affirmed the ICR of “a-” of Primerica, Inc. (Primerica) (Duluth, GA), which is the holding company for the group’s insurance and non-insurance operating companies. A.M. Best also has affirmed the debt rating of “a-” on $375 million 4.75% senior unsecured notes due 2022 of Primerica as well as the indicative ratings of “a-” for senior unsecured debt, “bbb+” for subordinated debt and “bbb” for junior subordinated debt and preferred stock, which may be issued under Primerica’s shelf registration statement. The outlook for all ratings is stable.

Primerica’s ratings recognize its status as one of the largest writers of term life insurance in the United States, with its strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, Inc. This integrated distribution and operating platform included approximately 95,400 life agents at the end of the first quarter of 2014. Primerica’s business profile in both the United States and Canada is further reinforced by its experienced management team, which successfully built and supports its sizable sales force.

Primerica’s earnings also have been consistent with A.M. Best’s expectations, as the group recorded annual GAAP net income of $163 million for 2013. On a statutory accounting basis, Primerica Life also booked an annual operating profit for 2013, with the inclusion of ongoing income related to the Citigroup Inc. reinsurance transactions; statutory accounting rules require that the gain on the reinsured business be deferred and recognized as income as earnings emerge. A.M. Best also notes that Primerica’s year-end 2013 GAAP financial leverage of 24%, excluding other comprehensive income, and GAAP interest coverage of more than eight times remain well within the guidelines for the company’s current ratings.

A.M. Best views Primerica Life’s regulatory risked-adjusted capitalization as favorable, in part supported by Peach Re, Inc., a special purpose domestic captive that funded Regulation XXX term life excess reserves on the 2009 in-force block not ceded to Citigroup Inc., as well as on new business issued in 2010. While A.M. Best anticipates that risk-adjusted capitalization will decline over the near term as the anticipated capital benefits from additional excess reserve financing is expected to be offset by dividends to the holding company, longer-term, risk-adjusted capital ratios are expected to remain at a level commensurate with the current ratings.

Offsetting these positive rating factors are Primerica’s somewhat narrow business profile, aggressive capital management policy and reinsurance transactions that have diminished its absolute capital position and earnings power. Primerica utilizes significant levels of reinsurance as a capital management and risk mitigation tool for its sizeable term insurance business, with 89% of its life insurance in-force reinsured at year-end 2013. In addition, while A.M. Best expects the consolidated statutory earnings of the insurance operating companies to benefit from the use of captives to fund Regulation XXX reserves, statutory capital and earnings growth of the insurance operating companies will likely be constrained by continued dividend payments to Primerica. At the parent level, more than 100% of its operating earnings have been returned to stockholders in each of the last three years.

Positive rating movement is unlikely in the near to medium term. Negative rating actions may occur should the organization’s risk-adjusted capital levels fall below A.M. Best’s expectations, earnings levels diminish significantly and/or other changes occur that adversely impact Primerica’s ability to successfully fund its redundant term insurance reserves.

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 .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com .