A.M. Best Affirms Financial Strength and Debt Ratings for American Equity; Assigns Issuer Credit Ratings to Its Insurance Subsidiaries.OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of B++ (Very Good) and has assigned issuer credit ratings (ICR (Intelligent Character Recognition or Image Character Recognition) The machine recognition of hand-printed characters as well as machine printing that is difficult to recognize. ) of "bbb+" to American Equity Investment Life Insurance Company (AEL AEL Association Electronique Libre AEL Appalachia Educational Laboratory AEL Arabisch Europese Liga AEL Agence de l'Energie AEL Arab European League AEL Accessible Emission Limit AEL Acceptable Exposure Limit AEL Arquivo Edgard Leuenroth ) (Des Moines, IA) and its wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , American Equity Investment Life Insurance Company of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of (Lake Success, New York Lake Success is a village in Nassau County, New York in the United States. The population was 2,797 at the 2000 census. The Village of Lake Success is in the Town of North Hempstead on northwest Long Island. ). Concurrently, A.M. Best has affirmed the ICR of "bb+" and existing debt ratings of American Equity Investment Life Holding Company (NYSE NYSE See: New York Stock Exchange : AEL) (Des Moines, IA). (See list below for debt detail.) All ratings have a stable outlook. The affirmation recognizes the significant improvement in the group's risk-adjusted and absolute capitalization levels largely as the result of substantial debt and equity capital-raising initiatives over the last two years, and that financial leverage and interest coverage are within expectations for the current ratings. Statutory and GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). results have also improved from healthy interest spreads, top line revenue growth, favorable mortality and surrender experience relative to pricing, and strong risk management of hedging-related option purchases. Additionally, AEL has made progress in reducing its asset/liability duration mismatch and diversifying its investment portfolio through the development of its commercial mortgage loan underwriting capabilities. AEL continues to maintain a leading market position as a top-five provider of equity-indexed annuities (EIA (Electronic Industries Alliance, Arlington, VA, www.eia.org) A membership organization founded in 1924 as the Radio Manufacturing Association. It sets standards for consumer products and electronic components. ). As such, the group's liability profile--with reserves of roughly 60% EIA and 40% fixed annuities--has solid surrender charge Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. protection. These strengths are tempered by AEL's somewhat limited business profile (i.e., a monoline annuity writer), interest rate risk, financial leverage of approximately 40% (incorporating some equity credit for hybrid securities) and its ongoing need to further diversify its investment portfolio, which remains heavily concentrated in callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. U.S. government and agency bonds. In addition, A.M. Best anticipates AEL's robust production levels will likely strain statutory risk-based capitalization going forward and that competition within the EIA marketplace will become more intense. A.M. Best believes that the current mismatch between AEL's assets and liabilities creates the potential for volatility in GAAP equity resulting from changing interest rate scenarios. It is expected that these gains or losses would be unrealized--and therefore reflected in stockholders' equity--as AEL's current cash flow modeling does not suggest the need to liquidate its investment portfolio, which effectively precludes economic realization of interest rate-related valuation changes. A.M. Best believes AEL can reasonably manage interest rate risk by reducing its duration mismatch, which is expected to gradually occur as its liabilities mature over time. Presently, AEL's interest rate risk and liquidity capacity is deemed adequate; however, its profile may change considerably if interest rates were to rise rapidly. A.M. Best notes that AEL's overall balance sheet strength and financial flexibility is qualitatively diminished given its elevated financial leverage and high DAC-to-equity ratio relative to peer companies. The following debt ratings have been affirmed: American Equity Investment Life Holding Company-- --"bb+" on $260 million 5.25% senior unsecured convertible notes, due 2024 The following indicative ratings under shelf registration have been affirmed: American Equity Investment Life Holding Company-- --"bb+" senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. --"bb" subordinated debt American Equity Capital Trust V and VI-- --"bb-" on trust preferred securities For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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