A.M. Best Affirms Ratings of Sterling Life Insurance Company
OLDWICK, N.J. -- June 6, 2013
A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and
issuer credit rating of “bbb+” of Sterling Life Insurance Company (Sterling)
(Chicago, IL). The outlook for both ratings is stable. Sterling is owned by
Munich Health North America, Inc. (MHNA), the U.S.-based subsidiary of its
ultimate parent, Munich Reinsurance Company (Munich Re) (Germany).
The affirmation of the ratings for Sterling reflects its product mix redesign,
good level of risk-based capitalization and the support of Munich Re.
Following its final exit from the Medicare Advantage Private Fee For Service
(PFFS) product in 2012, Sterling shifted its focus to growing its Medicare
Supplement business, critical illness care, as well as dental and other
insurance products. The Medicare Supplement business membership experienced
around 50% growth over the last several years and is expected to increase
further in the near term. Although Sterling’s capital and surplus has
significantly declined over the last four years (driven by operating losses
and dividend payments to MHNA), its level of risk-based capitalization remains
adequate for its level of business as its premium base reduced significantly.
In addition, A.M. Best expects Munich Re to provide capital support to
Sterling if needed.
Somewhat offsetting these positive rating factors are Sterling’s declining
premiums, weak financial performance and the challenge to adjust its
operations to a lower business volume. Sterling has experienced over a 50%
decline in direct premiums written over the last five years, with an
additional sizeable decrease expected in 2013. The lower revenue resulted from
the gradual phase out of the PFFS product, which was completed by year-end
2012. The PFFS earnings deteriorated substantially over the last two years as
the medical loss ratio for that line of business increased by over 1,500 basis
points in 2011. Sterling PFFS’ underwriting performance remained negative
during 2012; but, significantly improved when compared to 2011. Sterling’s
financial results are expected to strengthen in the near term following the
exit from PFFS’ line of business. However, A.M. Best is concerned that
near-term financial performance may be pressured by high administrative
expenses as the company is challenged to adjust the size of its operations.
A.M. Best considers Sterling to be well-positioned for its current rating
level. Factors that may lead to negative rating actions include continued
operating losses, decline in capitalization or changes in A.M. Best’s view of
the company’s strategic importance to the parent.
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.
Doniella Pliss, 908-439-2200, ext. 5104
Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Sally Rosen, 908-439-2200, ext. 5280
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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