The ratings reflect the group’s strong capitalization, high quality of surplus, favorable GAAP and statutory earnings. On a qualitative basis, capital is enhanced given the modest use of reinsurance, no utilization of captives and no permitted accounting practices. Financial flexibility is viewed favorably as well, with modest use of financial leverage and operating leverage complemented by strong interest coverage and ample holding company liquidity. Additionally, the ratings recognize the diversity in WSFG’s product offerings and distribution channels along with the additional earnings diversification provided by its asset management business. WSFG offers a mix of life insurance, annuities, retirement and investment products. These are sold through career agents, independent agents, banks, broker dealers and other financial institutions, and targeted to middle market individuals and investors. Finally, the ratings also recognize guarantees from WSLIC to all insurance subsidiaries and its affiliate, Lafayette Life.
Partially offsetting rating factors include operating returns that are somewhat lower than industry aggregates due in part to strong capitalization levels, moderate retention of redundant reserves and modest adjusted statutory profitability within the group’s ordinary life line. The group has high interest rate exposure as most of its earnings are driven from annuities, albeit investment spreads remain relatively stable. Given the concentration in annuities, there is the potential for disintermediation risk in a rapidly rising interest rate environment. However, this risk is partially mitigated by adequate surrender charge protection and modest deferred acquisition costs to equity ratios. Finally, while WSFG has expanded its product footprint and improved some market positions, its overall market position in life and annuities has remained relatively unchanged and it faces ongoing competition from other companies in the highly competitive
A negative rating action could occur if there is a deterioration in ordinary life earnings and a decline in top line life new business premiums. A negative rating action could result if a sustained decline in operating performance occurs or if there are material investment losses resulting in a significant decline in capital. Finally, a negative rating action could result if there is a material shift in the reserve mix toward more interest sensitive product lines.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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