OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “a” (Excellent) from “a-” (Excellent) of Fidelity & Guaranty Life Insurance Company (Des Moines, IA) and Fidelity & Guaranty Life Insurance Company of New York, (New York, NY). These subsidiaries of Fidelity & Guaranty Life Holdings, Inc. (FGLH) (Delaware), are referred to collectively as Fidelity & Guaranty Life Group (FGL). In addition, AM Best has upgraded the Long-Term ICR to “bbb” (Good) from “bbb-” (Good) and the Long-Term Issue Credit Rating to “bbb” (Good) from bbb-” (Good) on the $550 million 5.5% senior unsecured notes, due 2025 of FGLH. The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect FGL’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.
The rating upgrades reflect FGL’s expanding business profile and the diversification benefits provided by Fidelity National Financial, Inc. (FNF), which also guarantees the group’s $550 million senior unsecured notes, due 2025 and has contributed capital in recent years, including announcement of intent at year-end 2023 to invest $250 million which is expected to close in early 2024. FGL has generally maintained a top five market position within its core fixed-indexed annuity segment within the independent agent channel. Strong sales continue to be enhanced by the addition of several new distribution channels that include regional banks and broker dealers. In addition, FGL has expanded its presence in the pension risk transfer market over the last year. FGL has also experienced favorable growth in its indexed universal life insurance business.
FGL maintains a very strong level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) due to the retention of favorable earnings and the aforementioned capital contributions from its parent. FGL also maintains adequate liquidity due to strong operating cash flows and good surrender protection on its inforce annuity blocks of business. In addition, FGL has good financial flexibility, with access to the financial markets through its holding company, F&G Annuities and Life, Inc. AM Best also notes that FNF spun off 15% of its ownership in FGL, a little over a year ago via a taxable dividend to FNF shareholders in order to enhance and more fully recognize the overall market value for FNF shareholders and allow investors to invest directly in F&G. There are no expected changes in strategy, operations or management at FNF or FGL as a result of this transaction.
While risk-adjusted capital remains very strong, the group’s overall quality of capital is diminished by the significant increase in reinsurance leverage, the use of captive financial solutions, as well as the use of surplus notes. However, AM Best notes that FGL generally uses highly rated reinsurers.
The group has also experienced some volatility within its statutory net operating results due to reinsurance transactions, impacts from market volatility and other one-time events. However, interest rate spreads have remained favorable due to strong investment yields, which have benefited from the rise in interest rates and the repositioning of the investment portfolio into higher yielding structured securities. AM Best expects overall statutory and GAAP operating results to improve over the near to medium term due to gains in economies of scale as the company continues to grow premiums, while maintaining current interest rate spreads within its core fixed annuity business.
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