A.M. Best Co. has downgraded the financial strength rating to A-
(Excellent) from A (Excellent) and issuer credit rating to “a-” from “a”
of Security Mutual Life Insurance Company of New York (Security
Mutual) (Binghamton, NY). The outlook for both ratings has been revised
to stable from negative.
The rating actions reflect Security Mutual’s lower statutory operating
results, declining capital flexibility trends and shifting business
profile driven by a significant growth in fixed annuities in recent
While Security Mutual’s statutory operating results have been
consistently positive over the past five years, its net gains from
operations have declined significantly primarily due to decreasing
profitability in its core ordinary life business. This segment was
impacted by a high level of policyholder dividends on its participating
policies, higher than expected regulatory fees and temporarily lower
investment earnings due to the company’s high liquidity position.
Despite declining gains from operations, Security Mutual has maintained
a high dividend payout ratio. As a result, growth in its capital and
surplus position over the past five years has been muted.
A.M. Best also remains concerned with Security Mutual’s financial
flexibility and its low capital and surplus to liability ratio. While
the company’s adjusted capital and surplus position increased in the
current year, this ratio has trended lower in recent years as a result
of the large growth from fixed annuities. A.M. Best also notes Security
Mutual’s exposure in the commercial real estate market vis-a-vis its
commercial mortgage loan portfolio. However, A.M. Best notes that
Security Mutual’s commercial mortgage loans have performed well with no
foreclosures or delinquencies in the last five years despite the weak
real estate market.
Direct premiums in Security Mutual’s core ordinary life line of business
have remained flat, with a decrease in reported first year premiums in
2009. A.M. Best notes that the company’s fixed annuities, which have
experienced higher premium growth over the past two years, also have
recorded small statutory operating losses in the past two years. In
addition, Security Mutual’s group business, as well as other lines of
business, has generated only a modest contribution to its overall
The ratings of Security Mutual reflect its consistent positive statutory
operating results, conservatively managed investment portfolio and a
competitive presence within the upscale traditional life insurance
market niche, along with its growing worksite whole life business
segment. Operating gains before income tax and dividends to
policyholders represent an important driver of capital growth and
indicate good margins. The company’s high dividend scale gives it a
competitive advantage as a mutual life insurance organization. The
investment portfolio is conservatively managed, with little exposure to
real estate and high yield bonds. The quality of the investment
portfolio is attributable to the proactive nature of the company’s
enterprise risk management program. The company’s capital structure also
has no short-term liquidity needs as its $25 million in surplus notes
are longer term in nature.
For Best’s Credit Ratings, an overview of the rating process and rating
methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including
any additional methodologies and factors that may have been considered,
can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit
rating organization dedicated to serving the financial and health care
service industries, including insurance companies, banks, hospitals and
health care system providers. For more information, visit www.ambest.com.