Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating
of Primerica Life Insurance Company (Primerica Life) at 'A+'. The Rating
Outlook is Stable.
Primerica Life's rating is supported by the company's good risk adjusted
capitalization, strong competitive position in the individual term
insurance market, efficient captive distribution force, conservative
asset profile, and good operating performance. Partially offsetting
these positives are the company's narrow product profile and the size of
its in-force block of term life insurance, which was materially reduced
through a series of reinsurance treaties the company entered into prior
to its initial public offering on March 31, 2010.
On March 31, 2012, Primerica completed a reserve financing transaction
covering Regulation XXX reserves on its individual term life insurance
block. The transaction was executed through the use of a recently formed
special purpose Vermont-domiciled captive reinsurance subsidiary of
Primerica Life named Peach Re, Inc. As part of the transaction, Peach Re
entered into a 14-year letter of credit (LOC) facility with Deutsche
Bank for the benefit of Primerica Life. The initial amount of the LOC
facility is $450 million, but the company expects it to be increased to
a maximum of $510 million by 2014. The LOC facility is for the benefit
of Primerica Life in support of the reserves related to level premium
term life policies reinsured by Peach Re. The facility is non-recourse
to Primerica Life and Primerica.
Following the reserve financing transaction, Primerica Life received
regulatory approval for the payment of an extraordinary dividend to
Primerica in the amount of $150 million. The company announced on April
18, 2012, its intention to use the dividend to fund the repurchase of
5.7 million of the company's shares held by Warburg Pincus. In Fitch's
view, the reinsurance transaction and subsequent dividend reduces the
conservatism of Primerica Life's statutory reserves and weakens the
quality of the company's statutory capitalization. However, the
transaction is in line with Fitch's rating expectations and is
consistent with industry practice.
Fitch views Primerica Life's consolidated profitability to be good in
the quarters following its separation from Citigroup. The company's
earnings continue to reflect its conservative new business pricing which
supports its strong margins. For the 12 months ended Dec. 31, 2011, the
company reported pretax operating income of $270 million, which results
in a return on equity of 12.5%. Fitch anticipates that operating
earnings will improve gradually over the intermediate-term as the
company rebuilds its in-force block.
Primerica Life's risk-based capitalization declined significantly to
426% of company action level at Dec. 31, 2011, from 619% at the previous
yearend. The decline was driven by the payment of a statutory dividend
of $200 million to its parent company in Nov. 2011, and was used to fund
the execution of an agreement to purchase approximately 9 million shares
of its common stock from its former parent, Citigroup.
Fitch views Primerica Life's unique distribution force as a competitive
advantage which has been an important factor in the company's strong
record of profitability. Fitch believes that a material weakening of
this channel could adversely affect the company's operating performance
and its rating.Primerica Life remains one of the nation's largest
individual term life insurance writers, with nearly $1.8 billion in
direct statutory life insurance premiums written in 2011.
The key rating triggers that could result in an upgrade include:--sustained
improvement in statutory net operating gain over the next 12 to 18
The key rating triggers that could result in a downgrade include:--a
sustained decline in RBC below 400%;--a sustained increase in
parent leverage as measured by debt-to-total capital above 25% or TFC
ratio above 1.2x;--a material decline in the effectiveness of the
company's distribution channel.
Fitch affirms the following rating with a Stable Rating Outlook:
Primerica Life Insurance Company--IFS at 'A+'.
Additional information is available at www.fitchratings.com.
The issuer did not participate in the rating process other than through
the medium of its public disclosure. The ratings above were unsolicited
and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:--'Insurance Rating
Methodology' (Sept. 22, 2011).
Applicable Criteria and Related Research:Insurance Rating
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Fitch RatingsPrimary Analyst:Bradley S. Ellis, CFA,
+1-312-368-2089DirectorFitch, Inc.70 W. Madison StreetChicago,
IL 60602orSecondary Analyst:Douglas L. Meyer, CFA,
Chairperson:Keith M. Buckley, CFA, +1-312-368-3211Managing
DirectororMedia Relations:Brian Bertsch,
Source: Fitch Ratings