AM Best Revises Outlooks to Positive for ELCO Mutual Life and Annuity
OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has revised the outlooks to positive from stable and
affirmed the Financial Strength Rating of B (Fair) and the Long-Term
Issuer Credit Rating (Long-Term ICR) of “bb+” of ELCO Mutual Life and
Annuity (ELCO) (Lake Bluff, IL).
The ratings reflect ELCO’s balance sheet strength, which AM Best
categorizes as weak, as well as its strong operating performance,
neutral business profile and marginal enterprise risk management. The
revised outlooks to positive reflect a continued strengthening in ELCO’s
balance sheet, including improving risk-adjusted capitalization, as
measured by Best’s Capital Adequacy Ratio (BCAR), from profit-based
growth in absolute capital, improvements in the risk profile of its
investment portfolio and reduced reinsurance leverage. ELCO’s balance
sheet had been impacted by unfavorable balance sheet factors, including
the asset portfolio composition, which historically has had a higher
risk profile, and previously, a very high dependence on reinsurance for
ELCO’s deferred annuity business. Continued improvement of balance sheet
strength could result in positive rating action.
ELCO’s balance sheet strength assessment mainly reflects the company’s
weak level of risk-adjusted capitalization, together with significant
reinsurance leverage and limited financial flexibility, partly offset by
the absence of financial leverage and a mostly investment grade fixed
income portfolio. Furthermore, AM Best notes that ELCO’s financial
flexibility is somewhat limited as a small mutual company. The company
has a long history of producing operating profits that support capital
growth. Returns on equity are strong and driven by the profitability of
its core Medicaid-compliant annuity products, which are expected to see
continued growth. AM Best expects the company’s operating profitability
to remain favorable over the near term.
ELCO’s business is concentrated in annuity offerings, although the
company sells pre-need life insurance products, which add diversity.
Annuity production is centered on the senior market. Elder care
attorneys provide deposit-type single premium annuity sales. This is
ELCO’s core business, and the company has been a major participant in
these markets for over two decades. Independent general agents
distribute most deferred annuities. The group’s enterprise risk
management assessment is reflective of a governance structure, culture
and risk management controls commensurate with a small mutual insurer.
This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
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for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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Contacts
Richard Francis
Senior Financial Analyst
+1
908 439 2200, ext. 5152
richard.francis@ambest.com
Erik
Miller
Associate Director
+1 908 439 2200, ext.
5187
erik.miller@ambest.com
Christopher
Sharkey
Manager, Public Relations
+1 908 439
2200, ext. 5159
christopher.sharkey@ambest.com
Jim
Peavy
Director, Public Relations
+1 908 439
2200, ext. 5644
james.peavy@ambest.com