A.M. Best Affirms Ratings of Legal & General Group Plc’s U.S. Operations

  A.M. Best Affirms Ratings of Legal & General Group Plc’s U.S. Operations

Business Wire

OLDWICK, N.J. -- May 24, 2013

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and
issuer credit ratings of “aa-” of Banner Life Insurance Company (Banner Life)
(Frederick, MD) and William Penn Life Insurance Company of New York (William
Penn) (Garden City, NY). Banner Life and William Penn are collectively
referred to as the Legal & General America Group (LGA) and represent the U.S.
operations of the ultimate parent, Legal & General Group Plc (L&G), a
worldwide insurance organization headquartered in the United Kingdom. The
outlook for all ratings is stable.

The rating affirmations reflect LGA’s strong competitive position in the U.S.
term life market, where it currently ranks fourth as measured by new business
annualized premiums. The ratings also reflect LGA’s positive operating
performance as measured on both a U.S. GAAP and International Financial
Reporting Standard (IFRS) basis, which has been enhanced by LGA’s efficient
expense structure, variable cost distribution network and disciplined approach
to mortality underwriting.

The rating actions also acknowledge LGA’s adequate stand-alone capitalization
that has been augmented by a high quality long-term bond portfolio, which has
avoided material investment losses since the financial crisis and is currently
in a large net unrealized gain position. Furthermore, LGA has successfully
raised in excess of $5.5 billion through a variety of securitization
transactions to fund statutory Regulation XXX reserve requirements.

The rating actions also recognize LGA’s strategic importance to L&G, which has
provided explicit support when needed to sustain LGA’s new business growth.
A.M. Best also notes that L&G derives significant diversification benefits
from LGA’s mortality business, which acts as a natural hedge to L&G’s asset
accumulation business.

While the ratings acknowledge LGA’s strong market position and strategic
importance to L&G, its business profile remains heavily skewed to the highly
competitive and commoditized term life market. To lessen its business
concentration risk and further diversify its earning sources, LGA has entered
into the universal life insurance market. LGA’s concentration in mortality
risk exposes the group to volatility from adverse mortality experience. A.M.
Best notes that LGA’s actual mortality experience has been generally in line
with expectations, and its disciplined underwriting processes serve to
partially mitigate the risk of adverse experience.

A.M. Best also expects LGA to continue to experience volatility in its
statutory accounting results due to high levels of statutory expense strain
anticipated from new business production and the effects of periodic
Regulation XXX reserve financing transactions. A.M. Best notes that LGA has
historically relied on capital market securitizations to fund Regulation XXX
reserving needs. However, market conditions made it more difficult to obtain
capital efficient financing for its Regulation XXX reserves. Despite these
challenges, LGA continues to be successful in efficiently funding its new term
life business. Starting in 2010, LGA’s new term life production has been fully
funded utilizing the balance sheet of its parent. A.M. Best expects L&G to
continue to fund LGA’s expected new business production at least through the
near term. However, should the parent’s strategy to self-fund Regulation XXX
reserve requirements change, A.M. Best believes LGA may be challenged to find
suitable, cost-efficient financing and re-financing alternatives for funding
its Regulation XXX reserves.

A.M. Best believes LGA is well positioned at its current rating level. Key
rating factors that could result in negative rating actions include a
significant and sustained decline in its consolidated stand-alone
risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio
(BCAR) model, operating performance that does not meet A.M. Best’s
expectations over a sustained period, a deterioration in A.M. Best’s view of
LGA’s strategic importance to L&G or a downgrading of L&G’s ratings by A.M.

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

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

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


A.M. Best Co.
Steven Faulks, 908-439-2200, ext. 5035
Senior Financial Analyst
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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