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A.M. Best Revises Outlook to Negative for Employees Life Company (Mutual).

OLDWICK, N.J. -- A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and issuer credit rating of "bbb-" of Employees Life Company (Mutual) (ELCO ELCO Eastern Lebanon County (school district, Pennsylvania)
ELCO El Camino
ELCO Electrolytic Capacitor
ELCO Early Opening Local Census Office
ELCO Electronic Company
) (Lake Bluff, IL).

The revised outlook is based on ELCO's fluctuating fluc·tu·ate  
v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates

1. To vary irregularly. See Synonyms at swing.

2. To rise and fall in or as if in waves; undulate.

 levels of capital and surplus in recent years, as well as concerns regarding the company's ability to appropriately manage the capital requirements Capital requirements

Financing required for the operation of a business, composed of long-term and working capital plus fixed assets.
 and other risks associated with its recent annuity premium growth. A.M. Best notes that the company's risk-adjusted capital position declined significantly from year-end 2008 to year-end 2009 due to a substantial increase in annuity premiums generated during 2009. As a result, ELCO recently entered into a reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract.  agreement to cede just under one-fourth of its 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
 reserves in order to mitigate the impact of 2009 annuity sales on both absolute and risk-adjusted capital. While statutory earnings and surplus were bolstered as a result of the reinsurance transaction, A.M. Best remains concerned about continued elevated annuity sales relative to ELCO's capital base.

The rating affirmations reflect ELCO's well-established and market focused distribution channel, its demonstrated ability to profitably grow in its chosen markets and its currently sufficient level of risk-adjusted capital as a result of the aforementioned reinsurance transaction. ELCO's current focus is on expanding sales of both its annuity and pre-need products. Annuity production is centered on the senior market. Elder care attorneys provide deposit type single premium annuity sales, while most deferred annuities Deferred annuities

Tax-advantaged life insurance products. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of a life annuity.
 are distributed by independent general agents. Annuity sales have increased substantially in recent periods with the introduction of new deferred annuity products with multi-year guaranteed interest rates.

While ELCO's earnings remain positive, profitability has generally declined over the last few years due to a number of non-recurring items and recent statutory strain from the increase in annuity sales. The company's earnings have been primarily derived from profits on the life and annuity inforce business, largely driven by investment income. A.M. Best believes net operating gains may increase modestly in the near term due to increasing sales of both annuities and pre-need life insurance products, along with improving yields in its investment portfolio.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit
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Publication:Business Wire
Date:May 19, 2010
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