A.M. Best has affirmed the financial strength rating of A-
(Excellent) and the issuer credit ratings (ICR) of “a-” of the two
domestic life/health insurance subsidiaries of Philadelphia Financial
Group, Inc. (PFG): Philadelphia Financial Life Assurance Company
and Philadelphia Financial Life Assurance Company of New York.
Concurrently, A.M. Best has affirmed the ICR of “bbb-” of PFG. All
companies are headquartered in Philadelphia, PA. PFG is a subsidiary of
Tiptree Financial, Inc. [NASDAQ: TIPT], a diversified holding company.
The outlook for all ratings is stable.
The ratings reflect the group’s competitive position in the privately
placed insurance market, its low-risk insurance liability profile and
its adequate risk-adjusted capitalization. The group is dedicated to its
international expansion strategy as evidenced through its creation of
two Bermuda entities. A.M. Best views this as positive, as the group
lays the foundation to help diversify its business into different
regulatory and tax regimes. The group also continues to successfully
integrate the Philadelphia Financial Administrative Services’ (PFAS)
COLI/BOLI business, which is the result of the 2012 acquisition of the
administrative rights to The Hartford Financial Services Group Inc.’s
large in-force block of COLI/BOLI business. With the continued
integration of this acquisition, PFG improves its business profile as it
now administers approximately $37 billion in insurance policy account
value that has a relatively stable profile. Additionally, the group
reported favorable growth in separate account assets, as well as
improved statutory and GAAP profitability over the past year. PFG’s
operations are also supported by its strong balance sheet, with the
majority of its general account assets held in investment grade
corporate bonds and policyholder loans, as well as its adequate
risk-adjusted capitalization, supplemented by its lower risk liability
structure.
Partially offsetting these positive rating factors are the challenges
related to operating in an ultra-high net worth business, given the
complexity of the customized products and services offered. Going
forward, PFG also remains susceptible to an ever-changing regulatory
landscape with respect to both domestic and international taxation. A.M.
Best also notes the inherent unevenness of various financial metrics and
the company’s adequate, but below average risk-adjusted capitalization
relative to similarly rated life companies.
PFG’s financial leverage is moderately high for its rating level at
approximately 45% as of Dec. 31, 2013, but down modestly from 47% in
2012. Interest coverage is roughly 2.1 times, an increase from 1.6 in
2012. A.M. Best believes these levels are adequate as coverage is
sourced directly from PFAS’ earnings.
A.M. Best believes that a positive rating action is unlikely over the
near to intermediate term. Factors that could result in negative rating
actions include a significant decline in risk-adjusted capitalization as
measured by Best’s Capital Adequacy Ratio (BCAR) model, net operating
performance that falls markedly short of A.M. Best’s expectations or
significant changes in the tax laws that would negatively impact the
company’s ability to execute on its business model.
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.
Key insurance criteria reports utilized:
• A.M. Best's Liquidity Model for U.S. Life Insurers
• Evaluating Country Risk
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for U.S. and Canadian Life/Health Insurers
• Evaluating Non-Insurance Ultimate Parents
• Insurance Holding Company and Debt Ratings
• Analyzing Insurance Holding Company Liquidity
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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