A.M. Best Press Release, June 24, 2011A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of Primerica Life Insurance Company (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 revised the outlook to stable from negative and 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.
Concurrently, A.M. Best has assigned indicative debt ratings of "a-" to senior unsecured debt, "bbb+" to subordinated debt, "bbb" to junior subordinated debt and preferred stock, which may be issued under Primerica's recently filed shelf registration statement. The outlook assigned to the debt ratings is stable.
Proceeds from the securities issued under the shelf would be added to Primerica's general funds and used for general corporate purposes, including the repayment of indebtedness. Primerica's current GAAP financial leverage as of year-end 2010 was approximately 23% (excluding other comprehensive income), and GAAP interest coverage is expected to exceed 10 times for the next two years.
The revised outlook reflects that the transactions associated with Primerica's 2010 initial public offering (IPO) were executed as planned and that the company's current risk-adjusted capital position is stronger than pre-IPO levels. After ceding 80%-90% of its inforce business to Citigroup (which substantially reduced the group's absolute levels of assets, reserves and surplus), Primerica's year-end 2010 regulatory capital ratio was at its highest level in the last five years. Primerica's earnings also have been consistent with A.M. Best's expectations as the group recorded GAAP net income of $258 million for year-end 2010. On a statutory basis, Primerica experienced an operating profit for year-end 2010, with the inclusion of ongoing income related to the Citigroup reinsurance transactions (statutory accounting rules require that the gain on the reinsured business be deferred and recognized as income as earnings emerge).
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 includes approximately 95,000 life agents as of year-end 2010 and has been the primary driver of Primerica's excellent historical operating performance. Primerica's business profile is further reinforced by its experienced management team, which has successfully built and supported its sizable sales force.
Offsetting these positive rating factors is the fact that while Primerica's current risk-adjusted capitalization is higher than pre-IPO levels, its separation from Citigroup and the associated reinsurance transactions have diminished its absolute capital position and earnings power. A.M. Best also expects that Primerica will incur statutory losses on the retained book (business that was not ceded to Citigroup) over the next several years as profits are not yet material enough to cover the new business expense strain generated from continued strong term life sales. However, Primerica will likely report positive overall statutory earnings due to the amortization of the deferred gain mentioned above. A.M. Best also expects Primerica's risk-adjusted capitalization to decline somewhat over the near term as the capital requirements associated with new business will likely exceed the company's ability to grow statutory capital and surplus.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Life and Health Insurers"; "Assessing Country Risk"; "A.M. Best's Liquidity Model for U.S. Life Insurers"; "Rating Members of Insurance Groups"; and "A.M. Best's Ratings & the Treatment of Debt." Methodologies can be found at www.ambest.com/ratings/methodology.
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