A.M. Best has affirmed the financial strength rating of A-
(Excellent) and issuer credit ratings (ICR) of “a-” of American
Equity Investment Life Insurance Company and its subsidiaries, American
Equity Investment Life Insurance Company of New York (Lake Success,
NY) and Eagle Life Insurance Company, collectively referred to as
AEL. Concurrently, A.M. Best has affirmed the ICR of “bbb-” and the debt
and shelf ratings of AEILIC’s parent, American Equity Investment Life
Holding Company [NYSE:AEL]. The outlook for all ratings is stable.
All companies are domiciled in West Des Moines, IA, unless otherwise
specified. (Please see below for detailed listing of the debt and shelf
ratings.)
The affirmation of the ratings reflects AEL’s position as a leading
provider of fixed indexed annuities (FIA), consistently ranking in the
top three by market share. Additionally, the expanded utilization of
Eagle Life Insurance Company to offer FIAs through broker-dealers
provides diversification to AEL’s distribution channels. AEL has
reported favorable statutory and U.S. GAAP operating earnings due to
stable premium trends and management of interest rate margins.
Risk-adjusted capitalization remains adequate for its investment,
insurance and business risks, supported by a well-diversified investment
portfolio. Despite an increase in debt at the holding company following
a debt issuance in 2013, the company’s financial leverage and interest
coverage ratios are within guidelines for the current rating, and are
expected to improve slightly following the redemption and maturity of
its outstanding convertible notes.
Partially offsetting these positive factors is AEL’s concentration in
FIAs, with only modest product diversification. New market entrants have
heightened the competitiveness of the FIA market and may pressure AEL’s
growth and strain future operating performance. Furthermore, the
continued low interest rate environment and potential for higher
derivative costs from equity market volatility may negatively impact
operating returns. Additionally, the commercial mortgage loan portfolio
maintains a moderate percentage of loans with weak debt service coverage
ratios. A.M. Best notes that the risk of disintermediation under rising
interest rate scenarios is relatively low given the strong surrender
charge coverage on the majority of AEL’s policies.
Positive rating action for American Equity Investment Life and its
subsidiaries is unlikely due to its concentrated business and reserve
profile that remains highly interest-rate sensitive. Factors that could
lead to negative rating actions include a weakened market position,
unfavorable trends in net premiums written or interest rate margins, or
declines in risk-adjusted capitalization.
The following debt ratings have been affirmed:
American Equity Investment Life Holding Company
-- “bbb-” on $200 million 3.5% senior unsecured convertible notes, due
2015
-- “bbb-” on $400 million 6.625% senior unsecured notes, due 2021
The following indicative ratings under the shelf registration have been
affirmed:
American Equity Investment Life Holding Company
-- “bbb-” on senior unsecured debt
-- “bb+” on subordinated debt
-- “bb” on preferred stock
American Equity Capital Trust V and VI
-- “bb” on trust preferred securities
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
-
Analyzing Insurance Holding Company Liquidity
-
Equity Credit for Hybrid Securities
-
Insurance Holding Company and Debt Ratings
-
Rating Members of Insurance Groups
-
Evaluating U.S. Surplus Notes
-
Risk Management and the Rating Process for Insurance Companies
-
Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) that have been published on
A.M. 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 visit A.M. Best’s Ratings
& Criteria Center.
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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