OLDWICK, NJ–(BUSINESS WIRE)–AM Best upgraded the long-term issuer credit rating (long-term ICR) from “bbb” (good) to “bbb” (good) and affirmed the financial strength rating (FSR) of B++ (good) of EquiTrust Life Insurance Company (EquiTrust) (Chicgao, IL). The outlook for the long-term ICR has been revised from positive to stable, while the outlook for the FSR is stable.
The credit ratings (ratings) reflect EquiTrust’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile and appropriate management of business risks.
The upgrade in the long-term ICR reflects a trend of increasing EquiTrust’s risk-adjusted capitalization level, as measured by Best’s capital adequacy ratio (BCAR). EquiTrust had previously maintained a relatively low level of risk-adjusted capital compared to its peers, primarily due to dividends paid to shareholders at its parent company. However, the company’s risk-adjusted capitalization has increased in recent years due to a capital injection from its parent company, a lack of dividends to shareholders and a trend of favorable operating results. . The company also maintains a strong liquidity profile with strong cash flow from operations, very good surrender protection for in-force annuity contracts and additional borrowing capacity through the Federal Home Loan Bank. Overall premiums have increased significantly in recent periods, although there has been a decline in 2021 due to lower annuity sales due to lower credit rates in the low interest rate environment .
The company also continues to build new distribution relationships, which should drive further sales growth in the short to medium term.
The absence of audited financial statements from its parent company and uncertainty about its dividend requirements partly offset these positive factors. EquiTrust also maintains a relatively high level of reinsurance leverage with unrated insurance companies, although this has declined in recent periods. Although the company has had favorable operating performance in recent periods, there has been some volatility in the past. However, interest rate spreads remained favorable due to relatively stable investment returns despite pressures from the low interest rate environment. AM Best notes that the company maintains some concentration in structured securities, which currently make up only about a quarter of the general account’s investment portfolio. To partially mitigate this concern, the investment portfolio is well managed with good diversity by sector with only a modest number of writedowns over the past two years.
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