Primerica Under Review - Analyst Blog

On Monday, A.M. Best Co. placed the financial strength rating of A+ ( Superior ) and issuer credit ratings of “aa-" of Primerica Life Insurance Company ( Boston , MA ) and its subsidiaries under review with negative implications. These actions are a result of a recent announcement by Citigroup Inc. (C) that it has filed for an initial public offering (IPO) of Primerica, Inc. 

Primerica, Inc. is the newly established holding company for Primerica Life and its affiliates that also include National Benefit Life Insurance Company and Primerica Life Insurance Company of Canada . Citigroup is looking to divest its entire stake in Primerica, Inc. soon after the IPO’s completion, which is planned for early 2010. 

Prior to the completion of the offering, Primerica, Inc. will enter into four coinsurance agreements with three affiliates of Citigroup, where the vast majority of Primerica Life’s term life insurance policies in force as of December 31, 2009 will be ceded to Citigroup. The reinsurance transactions will include the transfer of a substantial portion of Primerica Life’s reserves and assets. 

The rating agency intends to keep the ratings under review until the successful completion of the IPO and its discussions with management regarding Primerica Inc.’s future operating projections, investment portfolio and capital structure. Citigroup, once the largest U.S. bank by assets, fell behind last year after a series of acquisitions by rivals. 

The bank has also been severely hurt by billions in losses and write-downs of problem loans and toxic assets. Citigroup's third quarter 2009 loss from continuing operations of 23 cents per share was in line with the Zacks Consensus Estimate. This compares favorably with a net loss of 72 cents in the prior-year quarter. Results for the quarter included $8 billion in net credit losses and an $802 million in net loan loss reserve build. 

The U.S. government injected $45 billion in bailout funds into the bank, $25 billion of which was recently converted to a 34% equity ownership stake. We expect Citigroup to incur higher credit losses in the upcoming quarters as its restructuring process continues. As such, we are maintaining our Neutral recommendation on the shares of Citigroup.
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