A.M. Best Affirms Ratings of Pekin Life Insurance Company

A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Pekin Life Insurance Company (Pekin, IL). The outlook for both ratings is stable. Pekin Life is a publicly traded company over the counter [PKIN.OB] and is a subsidiary of The Farmers Automobile Insurance Association.

The ratings of Pekin Life reflect its integral role within its parent organization, Pekin Insurance Group, strong risk-adjusted capitalization, conservative investment portfolio and diversified lines of business, which support the company’s varied target markets in its core regional geographical areas.

Pekin Life has been a generally positive contributor to its property/casualty-based parent organization. Over the past five years, Pekin Life has recorded consistent new business growth from its ordinary life segment, despite the challenging life insurance environment. Its investment portfolio consists primarily of investment grade bonds, with only a modest exposure to common stocks and real estate and no mortgages.

Somewhat offsetting these positive rating factors are Pekin Life’s geographical concentration risk and the varying operating results from its diverse lines of business. Pekin Life’s net gains from operations were slightly negative in 2009, driven by losses in its accident and health lines of business; however, A.M. Best notes its first quarter 2010 results were significantly positive. In addition, capital and surplus funds declined in 2009 due to a small net operating loss, realized capital losses and an increased dividend payment, somewhat offset by unrealized investment gains.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at http://www.ambest.com/ratings/methodology.