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A.M. Best Co. has removed from under review with developing implications and upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to “bbb+” from “bbb-”of EquiTrust Life Insurance Company (EquiTrust) (West Des Moines, IA). The outlook assigned to both ratings is stable. The company is ultimately owned by Guggenheim Capital, LLC. (Guggenheim).
The rating actions reflect EquiTrust’s new ownership by Guggenheim, good overall credit quality of its investment portfolio, recent trends of positive operating earnings and favorable level of risk-adjusted capitalization that is supportive of the company’s ratings.
EquiTrust was purchased by Guggenheim on December 30, 2011. Under its new ownership, EquiTrust has been able to resume its active marketing of fixed indexed annuities while receiving financial support and investment expertise from Guggenheim. EquiTrust has recorded positive trends in operating income for the past three years, including the first half of 2012, partially due to positive interest spread margins and until recently, lower strain-related costs. The overall high credit quality of the company’s investment portfolio, combined with its large unrealized gain position, supports EquiTrust’s capitalization.
Partially offsetting these positive rating factors is EquiTrust’s large exposure to interest-sensitive products, which may place it at risk of spread compression if the low interest rate environment persists, elevated exposure to structured investment products, commercial mortgages and below investment grade bonds relative to statutory capital and surplus and low rates of return.
Factors that could lead to positive rating actions for EquiTrust include increasing and sustained earnings trends, profitable premium and revenue diversification by reducing its high concentration in interest sensitive liabilities and a gradual reduction in exposure to structured securities.
Factors that could lead to negative rating actions include a weakening in the company’s risk-adjusted capitalization, reported financial results not meeting A.M. Best’s expectations or a loss of the strategic and financial support of Guggenheim.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding BCAR for Life/Health Insurers” and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology 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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