A.M. Best Revises Issuer Credit Rating Outlook to Negative for American Fidelity Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has revised the outlook to negative from stable for the issuer credit rating (ICR) of “bbb+” of American Fidelity Life Insurance Company (AMFI) (Pensacola, FL). Additionally, A.M. Best has affirmed AMFI's financial strength rating (FSR) of B++ (Good). The outlook for this rating is stable.

The negative outlook for AMFI's ICR reflects A.M. Best's concern regarding the effects of spread compression on AMFI's interest sensitive reserves, as a result of the low interest rate environment. The company's inforce deposit contracts (side funds) associated with its core life insurance contracts historically have offered generous guarantees, of which funding is more challenging during periods of sustained low interest rates. AMFI also has a geographic concentration of holdings in real estate and mortgages and has experienced continued deterioration in the performance of its mortgage loan portfolio, which has depressed investment yields. While there is good liquidity in its fixed income portfolio, AMFI maintains sizable affiliated investments in mortgages, real estate and equities, which are viewed as less liquid.

AMFI consistently generates positive operating results, which have increased due to lack of new business strain. The credit quality of AMFI's fixed income investment portfolio remains high and consists of investment grade corporate bonds and government securities. While AMFI maintains a strong risk-adjusted capitalization, the level of capitalization has been declining with increased dividends being paid to the parent, AMFI Corporation.

Factors that could result in a positive rating action include meaningful progress towards mitigating spread compression and the de-risking of the mortgage and real estate portfolios without deterioration in operating performance or capitalization. Factors that could lead to a negative rating action include continued spread compression, increasing exposure to non-performing loans and erosion of earnings and capital losses leading to a further decline in capital.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Life/Health Insurers”; “Risk Management and the Rating Process for Insurance Companies”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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