By Robert Dixon
Ratings agency A.M. Best has revised its outlook for Fidelity Security Life Insurance Co. and its New York subsidiary to negative from stable, according to a Feb. 15 statement. Best affirmed the financial strength rating of A- or “Excellent” and issuer credit ratings of “A-” for the privately held insurance company and its wholly owned subsidiary, Fidelity Security Life Insurance Co. of New York. The company’s prior rating was A+.
“The negative outlook primarily reflects the significant policy reserve strengthening of approximately $8 million, which occurred within FSL’s annuity product line as a result of recent cash flow testing results,” A.M. Best said in the release.
Fidelity Security Life previously reported two more actuarial reserve increases since 2008, and in a statement, A.M. Best said it believes that additional smaller reserve charges may occur in the future.
But that might reflect good news for Fidelity Security Life. Best reports that the insurer’s 2012 operating results were affected by strain ”resulting from a sizable increase in sales during the first half of the year of its MultiVantage5 annuity product, which had attractive crediting rates.” Fidelity Security Life has since re-priced and de-emphasized that product.
A one-time legal charge unfavorably impacted Fidelity Security Life’s operations in 2012, A.M. Best reported.
“While FSL has historically maintained a relatively conservative investment philosophy, A.M. Best is concerned regarding its growing exposure to higher-risk assets, specifically below-investment grade corporates and collateralized loan obligations, which provide additional yield without a significant increase in duration.” The ratings agency said it is closely monitoring the impact of that strategy as the industry navigates through the low interest rate environment.
The rating affirmations of FSL and FSLNY reflect continued strong capitalization, positive operating results regardless of the charges noted above and the company’s diverse portfolio of niche products. Fidelity Security Life’s business strategy is centered on five strategic business units employing distribution partnerships. Historically, the statement said, “Fidelity Security Life has reported good operating results in all five strategic business units, contributing to its growing equity position and increasing risk-adjusted capitalization. “
In February 2012, Fidelity Security Life Insurance acquired Great American Life Insurance Co. of New York for an undisclosed amount, according to the Kansas City Business Journal. The business, which had approximately $43.1 million in assets, was renamed Fidelity Security Life Insurance of New York. It operates as a wholly-owned subsidiary. Fidelity Security Life Insurance has more than $700 million in assets and has reported steady growth over the past five years, according to the company’s web site.
FSLNY has recently received approval to start marketing vision, prescription drug and stop-loss products in the state of New York, A.M. Best reported.
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