OLDWICK, NJ–(BUSINESSWIRE)–AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “bbb” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of EquiTrust Life Insurance Company (EquiTrust ) (Chicgao, IL). The outlook of the Long-Term ICR has been revised to stable from positive while the outlook of the FSR is stable.
The Credit Ratings (ratings) reflect EquiTrust’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The upgrade of the Long-Term ICR reflects a trend of EquitTrust’s increasing level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). EquiTrust previously had maintained a relatively low level of risk-adjusted capital compared with peers, primarily due to stockholder dividends paid to its parent. However, the company’s risk-adjusted capitalization has increased over the past few years due to a capital contribution from its parent, a lack of stockholder dividends and a trend of favorable operating results. The company also maintains a strong liquidity profile with strong operating cash flows, very good surrender protection on in-force annuity business and additional borrowing capacity through the Federal Home Loan Bank. Overall premiums have increased noticeably in recent periods, though there was a decline in 2021 due to lower annuity sales as a result of lower crediting rates in the low interest rate environment.
The company also continues to add new distribution relationships, which should foster additional sales growth over the near to medium term.
Partially offsetting these positive factors is the lack of audited financial statements from its parent and uncertainty regarding its dividend requirements. EquiTrust also maintains a relatively high level of reinsurance leverage with unrated insurance carriers, although this has been decreasing in recent periods. While the company has experienced favorable operating performance in recent periods, there has been some volatility in the past. However, interest rate spreads have remained favorable due to relatively steady investment yields despite pressures from the low interest rate environment. AM Best notes that the company maintains some concentration in structured securities, which currently comprises just approximately one-quarter of the general account investment portfolio. Partially mitigating this concern is that the investment portfolio is well-managed with good diversity by sector with only a modest amount of impairments during the past two years.
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