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THE FRANKLIN LIFE INSURANCE COMPANY CLAIMS PAYING ABILITY REAFFIRMED AT 'AAA'

    CHICAGO, Aug. 13 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has reaffirmed the claims paying ability of The Franklin Life Insurance Company (Franklin) at 'AAA'.  The rating reflects Franklin's profitable position in traditional participating individual life and disability income, low expense structure, excellent asset quality, and the maintenance of one of the highest statutory capitalization ratios in its size category despite regular dividend payments to its parent. Franklin's reserves appear to be very stable; life insurance is not sold for investment but for protection, individual annuities are agent sold, duration-matched, and back-end loaded, and group pensions are payout annuities with no cash surrender value.
    Franklin is a medium-sized stock life insurance company based in Springfield, Ill. with admitted assets of $5.6 billion and adjusted surplus of $759 million at yearend 1992.  The company is a wholly owned subsidiary of American Brands, Inc.  Franklin has a strong market position in individual life and annuity business in small towns and agricultural areas of the United State.  Individual life premiums and individual annuity deposits represented 54 percent and 34 percent, respectively, of 1992 total premiums and deposits.  Total premiums and deposits in 1992 were up 15 percent over the prior year.  First year life sales were up 13 percent reflecting the seasoning of the distribution force.  Net operating gain increased $5 million; the majority of the increase was attributable to increased investment income on a larger asset base, dividend changes reflecting lower interest rates and reduced surplus strain from reinsurance assumed.  Return on average admitted assets has fallen modestly the last several years reflecting increasing lower margin annuity business, but the five-year average of 4.90 percent was solid.
    Franklin's capitalization to admitted assets declined somewhat to a still excellent 13.6 percent of total assets.  Correspondingly, operating leverage, which is very strong given the company's liability mix, increased to 6.27 times from 5.69 times the previous year. Franklin historically has paid a dividend to American Brands of 55 percent of prior year's GAAP net income and dividends required by formula have always been lower than the statutory maximum.  American Brands access to the capital markets gives Franklin added flexibility in its plans to make block acquisitions of life business and American Brands is not expected to need to pull additional money, beyond normal dividends out of Franklin.
    Franklin has long had a very conservative investment philosophy avoiding the riskiest classes of assets.  However, given the strength of its capital positioned and the umbrella of its parent, Franklin decided several years ago that it could take some additional asset risk to increase returns.  A risk extension program targeting 12 percent mortgages and 6.5 percent equities is under way, to bring these asset classes up from current level of 8 percent and 5 percent, respectively.
    -0-             08/13/93
    CONTACT:  Martha M. Butler of Duff & Phelps Credit Rating Co., 312-368-3191 CO:  FRANKLIN LIFE INSURANCE COMPANY IN:  INS SU:  RTG ST:  IL


-- NY046 -- X643 08/13/93
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Publication:PR Newswire
Date:Aug 13, 1993
Words:495
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