May 2, 2019 by A.M. Best
Oldwick – AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating (FSR) of B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” of Investors Heritage Life Insurance Company (IHLIC) (Frankfort, KY), which is subsidiary of Aquarian Investors Heritage Holdings LLC (Aquarian).
The ratings reflect IHLIC’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The positive outlooks reflect an improved balance sheet assessment, which AM Best characterizes as strong due to improved risk-adjusted capitalization levels, as measured by Best’s Capital Adequacy Ratio (BCAR), reduced reinsurance leverage, and a reduction in investment risk due to decreased exposure to NAIC Class 2 bonds and reduced equity allocations. The company’s risk-adjusted capitalization levels improved due to the gain on the sale of affiliated stock of Investors Heritage Capital Corporation (IHCC) in conjunction with its acquisition by Aquarian in 2018, as well as an additional capital contribution made by Aquarian in the same year. IHCC also reduced its reinsurance leverage significantly by recapturing business from an unrated reinsurer.
Operating performance has been marginal historically due to lack of premium growth and low return metrics, but IHLIC has reported significant growth in its premiums last year due to the launch of a new multi-year guaranteed fixed deferred annuity product and has reversed a trend of declining premiums from 2013-2017.
However, operating performance remains constrained given sales acquisition costs and narrow spreads on its recently introduced fixed annuity product given high crediting rates.
While the company’s business profile is assessed as limited given its historical focus as a preneed and final expense writer with high geographic concentration, it is evolving as it migrates toward annuity products and expands geographically. IHLIC’s ERM is considered to be appropriate and has improved under its new ownership structure.
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