AM Best has affirmed the financial strength rating of A+ (Superior) of Primerica Life Insurance Company and its affiliates, National Benefit Life Insurance Company and Primerica Life Insurance Company of Canada, collectively referred to as Primerica Life.
AM Best recognises the strong market position of Primerica Life, which is one of the largest writer of term life insurance in the US, attributable to its dedicated distribution affiliate, Primerica Financial Services.
More than 106,000 life agents were included in this integrated distribution and operating platform.
AM Best said Primerica Life’s US and Canada business profiles are further reinforced by its experienced management team, which successfully built and supports its sizable sales force.
The company’s earnings have been consistent with AM Best’s expectations, as the group has generated solid levels of GAAP and statutory net income as margins have benefited from favourable historical trends in mortality.
Statutory net income also has benefited from the inclusion of ongoing income related to the Citigroup reinsurance transactions, as statutory accounting rules require that the gain on the reinsured business be deferred and recognised in income as actual experience emerges.
AM Best also notes that Primerica Life’s GAAP financial leverage and interest coverage ratios are within AM Best’s guidelines for its current rating level.
The level of Primerica Life’s risk-adjusted capitalisation, as defined by Best’s Capital Adequacy Ratio (BCAR), is sufficient to support its current business and insurance risks.
AM Best notes that risk-adjusted capitalisation has declined in recent years but increased in 2015. However, these declines were anticipated and primarily driven by significant dividend payments to the holding company.
In the future, AM Best expects risk-adjusted capitalisation ratios to remain relatively stable. AM Best also notes that Primerica Life has relied heavily in recent years on captive reinsurance to fund its Regulation XXX reserves associated with term life insurance, which in turn has benefited the group’s risk-adjusted capitalisation.
AM Best also expects that the NAIC’s anticipated implementation of Principles Based Reserving in 2017 will ameliorate Primerica Life’s dependency on captive funding of term reserves associated with new business.
Offsetting these positive rating factors are Primerica Life’s somewhat narrow business profile, and aggressive capital management strategy.
As AM Best noted, Primerica Life has relied heavily on captive reinsurance to fund its XXX reserves. As part of its assessment of a life insurance company’s balance sheet strength, the ratings agency considers not only the capital adequacy ratios, but also the quality of capital supporting such ratios.
AM Best believes that the quality of capital for an insurance operating company that has ceded XXX or AXXX reserves to a domestic or offshore captive is not as strong as for an operating company with similar risk-adjusted capital ratios that self-funds these reserves.
Finally, while AM Best expects Primerica Life to maintain an underlying trend of statutory profitability, statutory capital growth of the insurance operating companies likely will be constrained by continued dividend payments to Primerica.
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