By a News Reporter-Staff News Editor at Insurance Weekly News -- A.M. Best has upgraded the issuer credit ratings to "bb+" from "bb" and affirmed the financial strength ratings (FSR) of B (Fair) of Liberty Bankers Life Insurance Company (Liberty Bankers) (Oklahoma City, OK), and its wholly owned life insurance subsidiaries, The Capitol Life Insurance Company (Dallas, TX) and American Benefit Life Insurance Company (Oklahoma City, OK), together known as the Liberty Bankers Group. The outlook for all ratings is stable.
The rating upgrades reflect Liberty Bankers Group's positive trend of increasing absolute capital with a 5-year CAGR of 21.6% and significant improvement in risk-adjusted capital. The ratings also reflect management's actions to reduce investments in real-estate related investment classes and continuous work towards derisking the asset portfolio. Additionally, Liberty Bankers Group's improved risk-adjusted capital reflects a reinsurance transaction with Athene Annuity & Life Assurance Company on its fixed annuity in-force block of business in late 2012. While capital ratios have improved, core operating earnings remain below A.M. Best's expectations, due in part to surplus strain from the group's continued growth of Ordinary Life lines of business.
Liberty Bankers Group has reduced below investment grade bonds and real estate as a percentage of their investment portfolio, which is viewed positively by A.M. Best. Additionally, A.M. Best notes that the group has made progress in its efforts to balance annuity exposure with traditional life business. However, while management is focused on reducing some of Liberty Bankers Group's less liquid investments, A.M. Best remains concerned with its relatively high level of commercial mortgage loans and exposure to NAIC Class 2 investment grade bonds. There is also concern with regard to non-performing assets such as mortgage loans, particularly in light of the current stable economic climate. Given management's expectation of maintaining current exposure levels to this asset class, A.M. Best believes Liberty Bankers Group is taking on additional credit exposure which could be exacerbated in a volatile economic environment.
A.M. Best believes Liberty Bankers Group may experience positive rating movement if exposure to real estate-related investments (mortgage loans and real estate) continues to decline, core statutory earnings are sustainable with an increasing trend following the Athene reinsurance transaction, and the group's business mix is more balanced between interest sensitive and mortality business. However, the ratings and/or outlook may be under negative pressure if there is a deterioration of risk-adjusted capital, a decline in statutory results, material investment-related losses, a meaningful increase in commercial mortgage loan delinquencies, or higher allocation to real estate linked assets.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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