Fitch Affirms & Withdraws Primerica Life's IFS at 'A+'; Outlook Stable
CHICAGO -- June 19, 2013
Fitch Ratings has affirmed and withdrawn the Insurer Financial Strength (IFS)
rating of Primerica Life Insurance Company (Primerica Life) at 'A+'. The
Rating Outlook is Stable. Fitch has decided to discontinue the rating, which
KEY RATING DRIVERS
Primerica Life's rating is supported by the company's solid risk adjusted
capitalization, strong competitive position in the individual term insurance
market, efficient captive distribution force, conservative asset profile, and
good operating performance. Partially offsetting these positives are Primerica
Life's narrow product profile and the size of its in-force block of term life
insurance, which was materially reduced through a series of reinsurance
treaties the company entered into prior to its initial public offering on
March 31, 2010.
Fitch views Primerica Life's consolidated profitability to be good in the
three years following its separation from Citigroup. The company's earnings
continue to reflect its conservative new business pricing which supports its
strong margins. For the first three months of 2013, Primerica Life's parent
company, Primerica, Inc., reported consolidated pretax operating income of $61
million and annualized return on equity of 13.2%. Fitch anticipates that
operating earnings will remain fairly stable over the intermediate term as the
company rebuilds its in-force block in a low interest rate environment that is
pressuring investment income.
Primerica Life's risk-based capitalization (RBC ratio) was 602% of company
action level at Dec. 31, 2012, from up from 426% at Dec. 31, 2011. The
improvement was driven primarily by its March 2012 reserve financing
transaction covering Regulation XXX reserves on its individual term life
insurance block. In Fitch's view, the reserve financing transaction reduces
the conservatism of Primerica Life's statutory reserves and weakens the
quality of the company's reported statutory capitalization. However, the
reserve financing transaction is in line with Fitch's rating expectations and
is consistent with industry practice.
Following a $150 million extraordinary dividend paid to its parent in May
2013, the company's RBC ratio is expected to decline to an estimated 480% at
June 30, 2013. The dividend was used to fund the acquisition of the remaining
shares and warrants held by Warburg Pincus, which had held a significant stake
in Primerica since its 2010 IPO.
Fitch views Primerica Life's unique distribution force as a competitive
advantage which has been an important factor in the company's strong record of
profitability. Fitch believes that a material weakening of this channel could
adversely affect Primerica Life's operating performance and its rating.
Primerica Life remains one of the nation's largest individual term life
insurance writers, with nearly $1.8 billion in direct statutory life insurance
premiums written in 2012.
Fitch affirms and withdraws the following rating with a Stable Outlook:
Primerica Life Insurance Company
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013);
--'Life Insurance (U.S.) Sector Credit Factors' (Oct. 9, 2012);
--'Primerica Life Insurance Company (A Subsidiary of Primerica, Inc.)'(July
Applicable Criteria and Related Research:
Life Insurance (U.S.) Sector Credit Factors
Primerica Life Insurance Company A Subsidiary of Primerica, Inc.
Insurance Rating Methodology -- Amended
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Bradley S. Ellis, CFA
Fitch Ratings, Inc., 70 W. Madison Street, Chicago, IL 60602
Douglas L. Meyer, CFA
Keith M. Buckley, CFA
Brian Bertsch, +1-212-908-0549 (New York)
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