Are annuities finally cool? Well, they're shooting to the top of the charts!
A.M. Best Co. has upgraded the financial strength rating to B+ (Good) from B (Fair) and the issuer credit rating to "bbb-" from "bb" of Jefferson National Life Insurance Company (Jefferson National) (Dallas, TX). The outlook for both ratings is stable.
The ratings reflect Jefferson National's improved capitalization, positive growth trends and recent operating profitability. A management buyout of Jefferson National's parent, which included the addition of new private equity and family office investors, led to $20 million in new capital being contributed to Jefferson National, substantially increasing its absolute and risk-adjusted capitalization. Also as a result of the transaction, all debt at the holding company has been retired, improving the group's financial flexibility.
Jefferson National has experienced sales growth for its product, Monument Advisor, a no commission flat insurance fee variable annuity focused on tax-deferred investing instead of guaranteed benefits, which is designed for the registered investment advisor and fee-based advisor markets. The company has recorded net operating income due to increased fee income, cost cutting initiatives and a scalable technology platform.
Offsetting rating factors include the company's monoline business profile, its exposure to Guaranteed Minimum Death Benefits (GMDB) on its legacy variable annuity blocks of business and the challenges of building scale in its operations. Jefferson National's sales and earnings growth remain exposed to equity markets. A.M. Best notes that the variable annuity market remains highly concentrated and competitive.
A.M. Best believes that Jefferson National is well-positioned for its ratings.
Factors that may place downward pressure on the ratings include an erosion in capital due to unprofitable operations and/or other than temporary impairments; a sudden decrease in equity markets, which may increase reinsurance expenses for its GMDB and less than expected earnings due to lower future sales volume of Monument Advisor.
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. Key criteria utilized include: "Understanding BCAR for Life/Health Insurers" and "Risk Management and the Rating Process for Insurance Companies." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.