Keyport Life Insurance Company, Providence, R.I., was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
"This rating reflects the company's generally conservative operating profile, its favorable balance-sheet composition, strong earnings performance and excellent liquidity position and asset/liability management capabilities," according to Larry G. Mayewski, senior vice president of Best's life/health division. The rating also acknowledges the support of its parent concern, Liberty Mutual Insurance Company, which, through surplus contributions, has substantially enhanced Keyport Life's risk-adjusted capitalization in recent years. Partially offsetting these strengths is the company's concentrated operational focus in and highly competitive nature of the individual annuity market and its ongoing exposure to interest rate and disintermediation risks inherent in this line of business. Going forward, Keyport Life will be challenged in retaining a significant volume of its in force business as substantial blocks of contracts reach the expiration period on surrender penalties.
Keyport Life currently concentrates its activities in the sale of single and flexible premium deferred annuity contracts. Strong earnings results from its discontinued individual life segment combined with the improved earnings performance of its annuity operations in recent years has enabled the company to generate net operating gains in excess of $224.0 million since year-end 1987. This profitability has allowed Keyport Life to regularly increase surplus funds over this period of time. To further strengthen its financial position, the company received capital infusions from its parent company totalling $116.7 million and has significantly improved the overall quality of its investments over the past five years.
Although the company has experienced increased surrender activity in 1993 due to a substantial portion of its annuity contracts passing through the surrender penalty period, Keyport Life's retention program has been successful in exchanging approximately 40 percent of the business approaching a no-penalty status with new contracts.
At year end, the company's excellent liquidity position was supported by its favorable annual cash flow and investment-grade bonds, short-term securities and cash balances of approximately $7.6 billion (86 percent of invested assets). Keyport Life ranks among the 40 largest life insurers in the United States when measured by total assets.
National Life Insurance Company, Montpelier, Vt., was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
"This rating reflects the company's stable block of traditional life business which has enabled National Life to report a general improvement in earnings performance in recent years, its conservative operating strategy, high-quality investment portfolio and good capitalization," said Larry G. Mayewski, senior vice president of Best's life/health division. The rating also acknowledges the company's presence in the small business and professional marketplace, the strength and quality of National Life's distribution sources, and the expense savings achieved through the downsizing of its home office staff over the past several years. Partially offsetting these strengths are the challenges faced by the company in continuing to penetrate its primary markets and in balancing profitability and surplus accumulation while providing a competitive policyholder dividend schedule.
On a consolidated basis, National Life, together with its subsidiary companies, Vermont Life Insurance Company and Champlain Life Insurance Company, have experienced modest declines in the amount of direct and net premium income as well as new business issued over the past five years. However, while premium income has remained relatively flat on an overall basis due to the reinsurance of a portion of its individual disability income segment and declines in the amount of universal life and annuity business conducted, sales volume of the company's individual traditional life products (which is the company's primary product line) have experienced considerable growth in recent years. While many companies in its peer group have been adversely impacted by investment losses and forced to concentrate on improving asset performance, the quality of National Life's investment portfolio has enabled the company to focus its attention on insurance operations. As such, National Life redesigned its individual life portfolio during 1992, and with the introduction of its new series of products in the fourth quarter of the year, has experienced significant increases in sales. National Life will continue to introduce the balance of its new product offerings throughout the remainder of 1993.
At year end, National Life Insurance Company's excellent liquidity position was supported by its strong annual cash flow and investment- grade bonds, short term securities and cash balances in excess of $2.3 billion (74 percent of invested assets excluding policy loans).
As strategic subsidiaries of National Life Insurance Company, Vermont Life Insurance Company, Montpelier, and Champlain Life Insurance Company, also of Montpelier, were assigned 1993 Best's Ratings of "A+" (Superior). Each company's superior financial strength was affirmed and its rating level of "A+" was unchanged. It is anticipated the companies will be merged into National Life Insurance Company during 1993.
Penn Mutual Life Insurance Company, Philadelphia, was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
This rating reflects the company's diversified sources of revenue and distribution, the strong performance of its well-managed balance sheet and its favorable level of capitalization. Partially offsetting these strengths is the company's moderate exposures to the less-than- investment-grade and depressed real estate markets and its sub-par gains from operations in recent years.
Penn Mutual Life maintains a strong marketing presence in the upscale individual life market while also concentrating on the individual and group pension markets. Its distribution system was enhanced in 1992 by its acquisition of the former Monarch Life distribution force. This, along with the good agent retention of Penn Mutual's existing agency force, provides the company with a good competitive position in the individual marketplace. Diversification of operations is enhanced indirectly by broker/dealer and asset management activities through its subsidiaries, Janney Montgomery Scott and Independence Capital Management.
"Modest gains from operations have been complimented by strong realized gains resulting from active investment management," according to Larry. G. Mayewski, senior vice president of Best's life/health division. However, Penn Mutual's attention to expense control measures and interest-rate spread management has resulted in improved profitability over the past two years. "A.M. Best believes that these actions, along with the maturation of the company's diversified distribution network, has positioned the company to produce strong operating gains going forward," he added.
The investment portfolio is of good quality, although the company maintains modest positions in below-investment-grade bonds. The majority of these issues represent "fallen angels" which are actively managed. Potential for future losses from the company's mortgage loan portfolio is controlled by firm underwriting standards and close observation of the portfolio. Overall performance of both the bond and mortgage portfolios have been favorable in recent years.
Due to its strategic marketing role as a subsidiary of Penn Mutual Life Insurance Company, Penn Insurance and Annuity Company, Wilmington, Del., was assigned an initial 1993 Best's Rating of "A+" (Superior). This rating is based on the consolidated performance of the parent and the subsidiary.
Protective Life Insurance Company, Birmingham, Ala., was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
This rating reflects Protective Life's good investment performance, its broad distribution networks and diversified sources of earnings, its good capitalization and its consistent earnings performance. Protective Life's income stream is diversified through both distribution source and by product segment, thus tending to result in a more stable earnings source. Earnings have been consistently profitable and are expected to improve due to increased scale advantages being achieved by the various business segments through a combination of internal growth and through acquisitions of blocks of business.
"The company's rapid expansion in the GIC market since 1989 has weakened its historically very strong capitalization ratios," noted Larry G. Mayewski, senior vice president of Best's life/health division. "Nevertheless, capital levels remain strong and should stay at favorable levels due to the company's planned controlled growth of new GICs and overall good earnings performance," he added.
In order to support the company's rapid growth of GIC liabilities, investments in commercial mortgages surpassed $1 billion in 1992. Mortgage experience has been favorable, with delinquencies (including restructured and foreclosed loans) being only 1.4 percent of the total mortgage portfolio. The portfolio is somewhat undiversified, however, with about three-fourths of the mortgages representing loans on retail properties and about two-thirds of the loans being located in the East South Central and South Atlantic regions. Offsetting this lack of diversification is the company's minimal exposure to the weak California real estate market and the firm's stringent lending criteria and its underwriting emphasis towards assessing the credit strength of major tenants.
The company has been aggressive in acquiring blocks of business in recent years, and has been successful in diversifying earnings and strengthening the company's positions in certain market segments. However, this ongoing strategy will continue to place pressure on capitalization and will make it difficult to return capital levels to their historical levels. In the group segment, the company is vulnerable to potential changes in health care reform, but has positioned itself to be a survivor in this segment through the expansion of non-medical product offerings and through its managed care programs, including a PPO network.
Provident Mutual Life Insurance Company of Philadelphia, was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
"This rating assignment reflects the company's continuation of improved and favorable earnings performance, the overall conservative invested nature of the investment portfolio, its strong and growing presence in the upscale and variable product marketplaces and the maintenance of a favorable level of capitalization," noted Larry G. Mayewski, senior vice president of Best's life/health division. Partially offsetting these strengths is the challenges the company faces in sustaining marketing momentum in its core traditional life segment and in its growing variable product emphasis, its moderate surplus growth in recent years and its exposure to depressed real estate markets.
The rating also reflects improved operating gains which are attributable to reduced expense and policyholder dividend levels and favorable mortality experience. A.M. Best believes that conservative underwriting standards, ongoing expense control measures and lower commissions associated with variable sales will continue to benefit Provident Mutual Life's overall earnings performance. In addition, the company's decision to exit the disability income line of business during 1992 should result in a more stable earnings pattern going forward. In early 1993 Continental American Life, a subsidiary, was merged into the company; the merger is expected to provide growth, increased efficiency and greater financial strength.
It is anticipated that recently expanded distribution sources, including personal producing general agents, financial institutions and joint ventures combined with a complementary portfolio of traditional and variable products, will facilitate the company's overall marketing momentum. Furthermore, the merger of Continental American provides additional distributive depth with its established direct response marketing system.
Provident Mutual Life's mortgage portfolio is well-diversified by region and by property type. Although the performance of the company's mortgage portfolio has declined in recent years, problem loans represent only a modest amount of invested assets. The company's relative success in this market stems from its adherence to strict underwriting standards and its proactive, aggressive approach to problem loans and foreclosed real estate.
Prudential Insurance Company of America, Newark, N.J., was assigned a 1993 Best's Rating of "A++" (Superior). The company's superior financial strength was affirmed and its rating level of "A++" was unchanged.
"This rating reflects the diversity and leadership positions maintained in The Prudential's major business segments, its consistent and substantial operational profitability, strong liquidity and favorable capitalization," said Larry G. Mayewski, senior vice president of Best's life/health division. A.M. Best also views positively the financial flexibility that The Prudential enjoys despite the capital raising constraints that surround many mutual insurers. Somewhat offsetting these strengths is the ongoing exposure that exists to commercial mortgage and real estate investments, the potential for volatility and catastrophe-related losses from its property/casualty subsidiary unit, and the uncertain impact that changes arising from the various federal and state health care reforms proposals may have on the company's group operations.
However, "A.M. Best believes that The Prudential's business diversification, combined with its exceptional cash flows and investment management capabilities, provide sufficient insulation from the potential adverse impact of real estate and subsidiary related losses," Mr. Mayewski added. Additionally, A.M. Best views favorably the fact that the company has been building on its presence in the managed care arena, which is anticipated to provide for a continuation of the company's strong position in the accident and health field despite the uncertain regulatory climate.
The Prudential continues to maintain a dominant position in the individual life insurance field through its extensive career agency network. Although consolidated sales results were stable during 1992, the company experienced healthy growth in its group life and accident and health segment, largely through its affiliation with Association for the Aid of Retired Persons (AARP), and in its variable product lines, which offset the anticipated decline in sales of guaranteed investment contracts. Nearly all of its businesses contribute to the consistent and substantial statutory profitability, enabling the company to regularly increase its surplus position. In addition, the company's risk-adjusted capitalization has been enhanced by its increased focus on balance-sheet quality, and additional economic values imbedded in its retail brokerage, residential real estate, and managed care accident and health business segments.