A.M. Best Affirms Ratings of Legal & General Group Plc’s U.S. Operations
OLDWICK, N.J. -- May 30, 2014
A.M. Best 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 actions reflect LGA’s strong competitive position in the U.S. term
life marketplace, where it currently ranks fourth as measured by new term life
annualized premiums. The rating actions also reflect LGA’s solid 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, its variable cost distribution network strategy and
disciplined approach to mortality underwriting.
The rating affirmations also recognize LGA’s adequate stand-alone
capitalization that has been enhanced by a high quality long-term bond
portfolio, which has avoided material investment losses in recent years and is
currently in a net unrealized gain position. Additionally, LGA has
successfully raised in excess of $6 billion through a variety of
securitization transactions to fund statutory Regulation XXX reserve
requirements associated with its term life business. A.M. Best recognizes
LGA’s strategic importance to L&G, which has provided explicit support when
needed to sustain LGA’s new business growth. A.M. Best notes that L&G derives
significant diversification benefits from LGA’s mortality business, which acts
as a natural hedge to L&G’s life annuity business.
While these rating actions acknowledge LGA’s strong term life market position
and its strategic importance to L&G, LGA’s business profile remains narrow and
heavily skewed to the highly competitive and commoditized term life market. To
somewhat lessen this business concentration and to further diversify its
earning sources, LGA has entered the universal life insurance market; however,
it has been somewhat challenged to meaningfully grow this segment.
Furthermore, LGA’s concentration in mortality risk exposes it to volatility
from adverse mortality experience. A.M. Best notes that LGA’s actual mortality
experience has been generally better than, or in line with, A.M. Best’s
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 reserve
financing transactions. A.M. Best notes that prior to 2010, LGA relied on
capital market securitizations to fund Regulation XXX reserves. However,
unfavorable market conditions made it more difficult to obtain capital
efficient financing for its Regulation XXX reserving needs. 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 L&G. A.M. Best expects L&G to continue
to fund LGA’s expected new business production at least through the near term.
However, should L&G’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. LGA has recently implemented a strategic asset
allocation program whereby the group has been reducing its allocations to cash
and U.S. government asset classes while increasing its allocations to high
yield and non-144A private placement bonds and direct commercial mortgage
loans. The organization’s private placement securities and direct commercial
mortgage loans are managed by outside asset managers. While these asset
classes are expected to increase the overall yield of the invested asset
portfolio and improve asset/liability duration matching, these assets classes
are less liquid and expose the group to potential asset impairments should the
global economic recovery stall or deteriorate. A.M. Best does not expect
risk-adjusted capitalization to be impacted materially.
A.M. Best believes positive rating movement is unlikely over the near to
medium term. Key rating factors that could result in negative rating actions
include a significant and sustained decline in LGA’s consolidated stand-alone
risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio
(BCAR), operating performance that does not meet A.M. Best’s expectations over
a sustained period, a deterioration in A.M. Best’s view of the company’s
strategic importance to L&G and/or a downgrade of L&G’s ratings.
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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Company, Inc.
Steven Faulks, 908-439-2200, ext. 5035
Senior Financial Analyst
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
Press spacebar to pause and continue. Press esc to stop.