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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) (Lake Bluff, IL).

The revised outlook is based on ELCO's fluctuating levels of capital and surplus in recent years, as well as concerns regarding the company's ability to appropriately manage the capital requirements 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 agreement to cede just under one-fourth of its deferred annuity 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 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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