A.M. Best Lowers Financial Strength and Debt Ratings of Presidential Life Insurance Company.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 20, 2002 A.M. Best Co. has lowered the financial strength rating to B+ (Very Good) from B++ (Very Good) of Presidential Life Insurance Company (Nyack, N.Y.) (Nasdaq:PLFE). In addition, the company's senior debt rating has been downgraded to "bb-" from "bb+." The rating outlook remains stable. These rating actions follow A.M. Best's review of Presidential's third quarter 2002 financial results which reflect a further weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. in capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. on both a statutory and GAAP GAAPSee: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis, significant investment losses and continued rapid growth in fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. premium production. A.M. Best also recognizes the risk associated with Presidential's concentrated market profile, consisting primarily of fixed annuity products and the uncertainty regarding the future performance of the company's investment portfolio. Furthermore, current market conditions may hamper Presidential's ability to offer competitive crediting rates without squeezing margins. Both risk-adjusted and statutory capitalization at the life company have been weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak en·er n. by continuing losses from investments and the strain of new business writings. The substantial investment losses reported in the third quarter exceeded A.M. Best's expectations. A.M. Best believes current market conditions will make it difficult for Presidential to rebuild its capital position in the near term, given its rapid business growth rate and risk in the composition of its investment portfolio. The company's investment portfolio includes a large exposure to asset-backed and structured securities, less than investment grade bonds and illiquid Illiquid An asset or security that cannot be converted into cash very quickly (or near prevailing market prices). Notes: A house is a good example of an illiquid asset. See also: Cash, Liquidity Illiquid In the context of finance. investments in private placements and limited partnerships. A.M. Best views this with concern, given the company's declining trend in absolute and risk-adjusted capital over the last several years. Presidential's position in less than investment grade bonds increased to 193% of statutory capital and surplus at the end of the third quarter. Through the first nine months of 2002, Presidential reported a 33% decline in statutory capital and surplus, following a smaller decline in 2001. The company is exploring avenues for capital preservation and replenishment replenishment the addition of an appropriate quantity of properly prepared solution containing the correct concentration of chemicals to the developer solutions used in radiography. . A.M. Best views this as a necessary step due to the significant capital losses recorded in the last two years and the continued risk in the investment portfolio. The rating continues to recognize Presidential's favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. historical persistency achieved in the deferred annuity Deferred Annuity A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which marketplace, good cost controls and operating profitability, strong distribution relationships and improved geographic concentration and customer service. Presidential Life Corp.'s financial leverage -- defined as total debt to equity -- is 39% at Sept. 30, 2002. This is considerably higher than the 21% ratio at year-end 2000, which was considered moderate given conditions of the capital markets at that time. Presidential may face increased liquidity risk when factoring in shareholder dividends and funding requirements for supporting the necessary surplus levels and its long-term growth plans. 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 www.ambest.com. |
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