The current market leaders could run into some challengers.
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 solid 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 Primerica Life'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.
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 first three months of 2012,
Primerica, Inc., Primerica Life's parent company, reported consolidated
pretax operating income of $61.3 million and annualized return on equity
of 12.8%. Fitch anticipates that operating earnings will improve
gradually over the intermediate-term as the company rebuilds its
Primerica Life's risk-based capitalization (RBC ratio) declined
significantly to 426% of company action level at Dec. 31, 2011, from
619% at Dec. 31, 2010. The decline was driven by the payment of a
statutory dividend of $200 million to its parent company in November
2011. The dividend was used to fund the execution of an agreement to
purchase approximately nine million shares of its common stock from its
former parent, Citigroup.
In addition, on March 31, 2012, Primerica Life completed a reserve
financing transaction covering Regulation XXX reserves on its individual
term life insurance block and, as a result of the released reserves,
subsequently paid an extraordinary dividend to its parent company in the
amount of $150 million. The dividend was used to fund the repurchase of
5.7 million of Primerica, Inc. shares held by Warburg Pincus, its
largest shareholder. Although Primerica Life's estimated RBC ratio was
reported to be in excess of 560% at March 31, 2012, in Fitch's view, the
reserve financing transaction and subsequent dividend reduces the
conservatism of Primerica Life's statutory reserves and weakens the
quality of the company's reported statutory capitalization. However, the
reserve financing transaction is in line with Fitch's rating
expectations and is consistent with industry practice.
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 Primerica Life'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.
Key rating triggers that could result in an upgrade include:
--sustained improvement in statutory net operating gain over the next
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
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 ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).
Insurance Rating Methodology
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Fitch RatingsPrimary AnalystBradley S. Ellis, CFADirector+1-312-368-2089Fitch,
Inc., 70 W. Madison Street, Chicago, IL 60602orSecondary
AnalystDouglas L. Meyer, CFAManaging Director+1-312-368-2061orCommittee
ChairpersonKeith M. Buckley, CFAManaging Director+1-312-368-3211orMedia
Relations:Brian Bertsch, +1-212-908-0549 (New York)[email protected]
Source: Fitch Ratings