The ratings reflect the groupís diversified business profile and distribution network, increased ordinary life sales, strong risk-adjusted and absolute levels of capitalization and favorable trends of statutory and GAAP operating performance. WSFG offers a diversified mix of life, annuity and investment products through a diversified distribution network of career and independent agents, financial institutions and banks, primarily targeting middle-income individuals. Risk-adjusted capitalization remains very strong with one of the highest absolute capital and surplus to liability ratios in its peer group. Additionally, the quality of WSFGís capital is excellent with moderate financial leverage, limited use of reinsurance and no use of captive reinsurers. The ratings also recognize the guarantees from WSLIC to all subsidiaries along with strong liquidity resources at the holding and operating company levels. Financial leverage and interest coverage remain well within A.M. Bestís guidelines for the organizationís current ratings.
Offsetting these positive rating factors is the competitive challenges WSFG faces in growing its market position in the highly competitive U.S. life and annuity marketplace. While WSFG continues to make progress in enhancing its brand name recognition, its overall U.S. market position has remained relatively unchanged in recent years. Operating performance is somewhat lower than similarly rated peers, with moderate statutory returns on equity, despite stable annuity spreads and ongoing expense controls. Although there has been some progress in reducing interest sensitivity on the groupís balance sheet, interest-sensitive reserves are two-thirds of general account reserves, which exposes the organization to either spread compression in a low interest rate scenario or disintermediation risk in a rapidly rising interest rate scenario. However, disintermediation risk is partially mitigated by good surrender charge protection and execution of a macro hedge to offset potential loss of market value in the groupís bond portfolio.
Factors that may lead to positive rating actions include a continued increase in the organizationís ordinary life sales with a corresponding decrease in interest-sensitive reserves, an increase in its overall competitive market position and significantly stronger returns on equity. Factors that may result in negative rating actions include higher exposure to interest sensitive product lines and a material decline in risk-adjusted capital due to investment losses and/or adverse operating results.
The methodology used in determining these ratings is Bestís Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bestís rating process and contains the different rating criteria employed in the rating process. Bestís Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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Assistant Vice President
Manager, Public Relations
Assistant Vice President, Public Relations