A.M. Best Upgrades Ratings of American Equity.OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B++ (Very Good) and the 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. ) to "a-" from "bbb+" for American Equity Investment Life Insurance Company (American Equity) (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 . Concurrently, A.M. Best has upgraded the ICR to "bbb-" from "bb+" of American Equity Investment Life Holding 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 ) (NYSE NYSE See: New York Stock Exchange : AEL) (Des Moines, IA). A.M. Best has also upgraded the existing debt and indicative ratings of AEL. The outlook for all ratings is stable. (See below for a detailed list of the ratings.) The rating upgrades recognize American Equity's positive risk-adjusted and absolute capitalization trends, solid earnings, enhanced investment diversification, reduced asset/liability mismatch and improved risk management practices. The company maintains a leading market position as a top five provider of indexed annuities (IA). As such, American Equity's liability profile--with reserves of roughly 60% IA 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. Statutory and GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating results have benefited from healthy interest spreads, enhanced scale of the group's annuity block due to strong sales--albeit recently moderating--and favorable persistency. Additionally, American Equity's risk management practices are strong, evidenced by careful monitoring of hedging related option purchases, ongoing refinement of hedging costs and prudent monitoring of option price volatility. Consolidated financial leverage and interest coverage are within expectations for the current ratings. In the near to medium term, A.M. Best expects interest coverage to reside in the 3-5 times range and adjusted financial leverage to remain relatively constant at roughly 35%. These strengths are tempered by AEL's somewhat limited business profile (i.e., a monoline annuity writer), above-average interest rate risk, high intangibles-to-equity ratio and the ongoing need to further diversify its investment portfolio while maintaining a reasonable match of asset and liability durations. A.M. Best notes ongoing regulatory risk and potential product suitability issues faced by 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. writers, as well as an increasingly competitive landscape that may rationalize profit margins over time. Additionally, American Equity's relatively young annuity block has significant potential for disintermediation The elimination of the distributor and/or retailer (the middleman) when making a purchase. The term is used to refer to purchasing directly from a manufacturer's Web site, the benefits of which are convenience, fast turnaround time and sometimes lower prices. as interest rates rise. However, the business is well protected with over nine years of average surrender charge remaining. Robust production levels have historically constrained risk-adjusted capitalization levels and created an uneven operating profile due to the cyclical nature of the company's capital-raising/capital deployment initiatives. A.M. Best expects these trends to moderate going forward and that American Equity will maintain absolute and risk-adjusted capital levels commensurate with its current ratings. Interest rate risk remains high, given a substantial percentage of investments held 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, which are carried at book value on the balance sheet. A.M. Best notes that American Equity's current cash flow modeling does not suggest the need to liquidate these investments over the near term, thus precluding economic realization of interest rate related losses. Overall, the group's interest rate risk and liquidity capacity is deemed adequate, although moderating top line revenue growth, elevated financial leverage and increased exposure to commercial mortgage loans qualitatively dampen its future financial flexibility. The following debt rating has been upgraded with a stable outlook: American Equity Investment Life Holding Company-- --to "bbb-" from "bb+" on $260 million 5.25% senior unsecured convertible notes, due 2024 The following indicative ratings have been upgraded with a stable outlook: American Equity Investment Life Holding Company-- --to "bbb-" from "bb+" on senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. --to "bb+" from "bb" on subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". --to "bb" from "bb-" on preferred stock American Equity Capital Trust V and VI-- --to "bb" from "bb-" on trust preferred securities 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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