OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of EquiTrust Life Insurance Company (EquiTrust) (Chicago, IL). The outlook of the FSR is stable.
These Credit Ratings (ratings) reflect EquiTrust’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The positive outlook on the Long-Term ICR reflects EquitTrust’s increasing level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). EquiTrust had maintained a relatively low level of risk-adjusted capital compared with peers, primarily due to stockholder dividends paid to its parent. However, risk-adjusted capitalization has increased over the past few years due to a capital contribution from its parent, a lack of stockholder dividends and favorable operating results. The company also maintains a strong liquidity profile with strong operating cash flows, very good surrender protection on in-force annuity business and additional borrowing capacity through the Federal Home Loan Bank. Overall premiums have increased noticeably in recent periods and sales remained strong throughout 2020 as the company had been proactive in digitizing its sales processes prior to the pandemic. The group also continues to add new distribution relationships, which should foster additional sales growth over the near to medium-term.
Partially offsetting these positive factors is the lack of audited financial statements from its parent and uncertainty regarding its dividend requirements. EquiTrust also maintains a relatively high level of reinsurance leverage with unrated insurance carriers, although this has been decreasing in recent periods. While the company has experienced favorable operating performance in recent periods, there has been some volatility related to the timing differences with the company’s hedging program and commission expenses. However, interest rate spreads have remained favorable due to relatively steady investment yields despite pressures from the low interest rate environment. AM Best notes that the company maintains some concentration in structured securities, which currently comprise just under one-quarter of the general account investment portfolio. Partially mitigating this concern is that the investment portfolio is well-managed with good diversity by sector and with moderate exposure to industries heavily impacted by the pandemic. The portfolio experienced only a modest amount of impairments during the past year and was in a substantial unrealized gain position as of year-end 2020, although there were some pockets of unrealized losses primarily within structured securities. While the company may experience an increase in credit impairments over the near to medium-term as a result of the pandemic, AM Best believes that overall impairments will be held to manageable levels.
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