Fitch Affirms Shenandoah Life Insurance At 'A+'; Rating Outlook Stable.Business Editors CHICAGO--(BUSINESS WIRE)--July 30, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the 'A+' insurer financial strength (IFS) rating of Shenandoah Life Insurance Company (Shenandoah). The Rating Outlook is Stable. Although Shenandoah's rating has been affirmed, Fitch is concerned about the recently reported operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. and deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of the company's investment portfolio, both of which undermine the company's economic fundamentals. Other challenges include Shenandoah's participation in highly competitive markets and limited financial flexibility as a mutual insurance company. Favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. , Shenandoah's current capital levels are sufficient to support the company's plans for growth and sales have improved in individual life insurance and annuity products. Over the past eighteen months, the credit quality of Shenandoah's investment portfolio has deteriorated as below investment grade bonds (BIGs), which are primarily in the airline industry, have increased significantly. Rating changes for equipment trust certificates and enhanced equipment trust certificates drove the significant increase in BIGs. At year-end 2001, BIGs as a percentage total bonds; and BIGs as a percentage of adjusted surplus, were 9.8% and 46.5%, respectively (compared to 1% and 4.3%, respectively at year-end 2000). As of June 30, 2002, BIGS decreased to 6% of total bonds and 32.4% of adjusted surplus primarily as a result of sales of airline equipment trust certificates. Given the continued deterioration of the US economy and especially the airline industry, Fitch believes the company may report additional investment losses for enhanced equipment trust certificates (EETCs). Losses greater than management's estimates will put downward pressure on the current rating. In addition, over the past several years, Shenandoah's statutory profitability has been low relative to historical levels and below expectations for the rating category. Until recently, Fitch considered this trend acceptable given the significant increase in sales and ensuing en·sue intr.v. en·sued, en·su·ing, en·sues 1. To follow as a consequence or result. See Synonyms at follow. 2. To take place subsequently. statutory strain. However, in 2001 and the first half of 2002, Shenandoah posted significant realized capital losses (statutory losses of $6.9 million and $1.3 million, respectively). Statutory pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating loss was $0.5 million in 2001 down from a pretax operating gain of $5.6 million in 2000. Going forward, Fitch expects Shenandoah's profitability to be depressed by statutory strain and some capital losses and is concerned that the company may report higher than expected capital losses. While absolute and risk-adjusted capital has declined, Fitch believes Shenandoah's current capital position is appropriate for the rating category and sufficient to support the company's plans for growth. Fitch expects Shenandoah to maintain its balance sheet strength, as measured by investment quality, operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. , and capitalization (absolute and risk-adjusted). Over the past several years, Shenandoah has improved its sales and competitive position in the individual life insurance market by expanding distribution and developing products that meet the specific needs of its target markets. The company's sales growth has been driven primarily by individual life and annuities, and more recently has been enhanced by group dental. In 2001, sales of core individual life insurance products grew 5.9% to $32.2 million from $30.4 million in 2000 and individual annuity sales, increased 53.9% to $57.7 million from $37.5 million. Going forward, Fitch believes core life sales are likely to grow at or above industry averages and annuity sales will fluctuate with the interest rate and investment environment. Shenandoah, established in 1914, is a moderate-sized mutual life insurance company licensed in 29 states and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). with operations concentrated in the Southeast. The company offers individual life insurance and annuities as well as group life and health insurance to niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. . Shenandoah's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). assets and shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. were $1.1 billion and $172 million, respectively, at March 31, 2002. Entity/Issue/Type Action Rating/Outlook Shenandoah Life Insurance Company --Insurer financial strength Affirmed 'A+'/Stable. |
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