The upgrade of FNWLís ICR reflects its strategic role in marketing life and annuity products to the middle market as part of the Farmers Exchanges agent distribution network, strong risk-adjusted capitalization and high quality investment portfolio. FNWL is a core subsidiary within ZIG GLNA as it continues to generate the vast majority of earnings and premiums. Partially mitigating factors include narrow spreads from large in-force blocks of business that have high minimum guarantee rates, ongoing challenges in enhancing life productivity within the Farmers agent base while improving persistency and an elevated percentage in holdings of structured securities, although these securities have historically performed well.
The ratings affirmation of ZALICO reflects its refined business profile toward the high net worth, private placement and global employee benefits marketplace, along with favorable top-line premium growth and new business margins. Additionally, the ratings reflect the high credit quality and liquidity profile of ZALICOís investment portfolio along with adequate levels of risk- adjusted capitalization. Historically, capital has been managed through high utilization of reinsurance provided by ZIG for new and legacy business lines to promote capital efficiency and to mitigate statutory losses related to variable annuities and bank-owned life insurance. Partially mitigating factors for ZALICO include a somewhat narrow business profile in the highly competitive U.S. market and the need to continue to execute on its overall business strategy. Other factors include moderate but increasing premium growth and statutory losses associated with new business strain.
Positive rating actions for ZALICO and FNWL are not likely in the near term. However, factors that may lead to negative rating actions in the future include a material decline in risk-adjusted capitalization, a decline in operating performance below A.M. Bestís expectations, or a lack of reinsurance or capital support from ZIG.
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