DUFF & PHELPS: SECURITY LIFE INSURANCE COMPANY OF AMERICA CLAIMS PAYING ABILITY RATING LOWERED TO 'A+'
CHICAGO, July 20 /PRNewswire/ -- Duff & Phelps Credit Rating Co. announced today that it has lowered the claims paying ability rating of Security Life Insurance Company of America (SLICA) to "A+" (Single-A-Plus) from "AA-" (Double-A-Minus). The rating action reflects the decreasing trend in SLICA's earnings, the uncertain future of the group health insurance marketplace, the cash requirements of its leveraged parent and weakness in the individual life business. Weighed against these negatives are the high quality investment portfolio, limited group health risk profile and reasonable operating leverage. SLICA is a Minneapolis-based life insurance company with admitted assets of $112 million and adjusted surplus of $17 million at Dec. 31, 1992. Congress Life Insurance Company (Congress) is a wholly owned, Arizona-domiciled subsidiary. SLICA and Congress share the same management, operations, and distribution systems. Both companies offer group health insurance and individual life insurance. Congress had admitted assets of $25 million and adjusted surplus of $11 million at yearend 1992. SLICA is a subsidiary of Security American Financial Enterprises, Inc. (SAFE). SAFE became a private organization via a leveraged buy out (LBO) by SAFE's Employee Stock Ownership Plan (ESOP) in November 1989 funded by $15 million in debt. As of Dec. 31, 1992, the debt was reduced to $11 million. The ESOP borrowed an additional $3.7 million from SAFE over the last two years to cover the higher than anticipated retirements and deaths from the ESOP. SLICA and Congress limit their exposure to underwriting risk on the health insurance business by reinsuring on average 60 percent of the risk. This has resulted in the health business being profitable since 1977. However the future growth and profitability of health insurance are uncertain due to national and state health care reform initiatives. Congress has re-entered the pre-need/final expense life insurance in 1991. Plans are to expand this business by investing $2 million in 1993. SLICA is working toward establishing profitability in the universal life business. SLICA and Congress must increase the production of universal life and pre-need/final expense life insurance to realize economies of scale. SLICA has a high quality investment portfolio. Below investment grade bonds account for only 5 percent of adjusted surplus for SLICA and Congress at yearend 1992. Congress does not have any investment in mortgage loans. For SLICA, mortgages loans are 20 percent of the invested assets with trouble commercial real estate being only 3.0 percent of adjusted surplus at yearend 1992. Return on assets has declined over the last five years from 6.61 percent in 1988 to 0.37 percent for 1992 for SLICA and from 17.00 percent to 6.82 percent for Congress. Return on adjusted surplus has also declined from 27.6 percent in 1988 to 1.4 percent in 1992 for SLICA and from 26.4 percent in 1988 to 12.7 percent in 1992 for Congress. Operating leverage is reasonable but has increased from 4.20 times at yearend 1991 to 5.45 times at yearend 1992 for SLICA. -0- 7/20/93 /CONTACT: Sandra A. Seidl, A.S.A of Duff & Phelps Credit Rating Co., 312-368-3116/
CO: Security Life Insurance Company of America ST: Minnesota IN: INS SU: RTG
TS -- NY093 -- 3480 07/20/93 15:06 EDT
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|Date:||Jul 20, 1993|
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