OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best has revised the outlooks to negative from stable
and affirmed the Financial Strength Rating of B++ (Good) and the
Long-Term Issuer Credit Rating of “bbb” of American Fidelity Life
Insurance Company (AMFI) (Pensacola, FL).
The outlook revisions reflect AMFI’s limited business profile, trend of
contracting inforce business and A.M. Best’s view of the need for a more
robust enterprise risk management (ERM) function.
The ratings reflect AMFI’s generally declining trend of net premiums and
inforce block of business, increase in NAIC2 bond holdings, significant
geographic concentration of holdings in real estate and mortgages, and
investment concentration in the financial sector. AMFI has a challenging
regulatory environment and exposure to spread compression on its
interest-sensitive reserves, given the low interest rate environment and
the significant proportion of annuity and side-fund deposits with high
guaranteed minimum credit rates. A.M. Best also notes that AMFI
Corporation, the parent of AMFI, has experienced declining debt
service coverage ratios that are now below levels that support the
Partially offsetting rating factors are AMFI’s strong risk-adjusted
capitalization, generally positive operating results, high credit
quality fixed income investment portfolio and its long history of
marketing life insurance products in the military market. In recent
years, the company has protected its portfolio yield by increasing the
allocation to investment grade corporate bonds and decreased its
allocation to U.S. Treasury securities.
Key rating factors that could result in a positive rating action include
several years of sustained profitable growth in premium levels, inforce
business metrics and capitalization, or enhanced ERM governance, and
demonstration of a formal ERM program with improved data quality and
internal controls. Key rating factors that could result in a negative
rating action include decreased risk-adjusted capitalization or
deterioration in the investment risk profile, or increased pressure to
dividend to the parent from unfavorable corporate performance in the
This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings.
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