A.M. Best Revises Outlook to Negative for New Era Group’s Members

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to negative from stable and has affirmed the financial strength ratings of B+ (Good) and issuer credit ratings of “bbb-“ of New Era Life Insurance Company, New Era Life Insurance Company of the Midwest and Philadelphia American Life Insurance Company,all members of the New Era Group. All companies are domiciled in Houston, TX. The revised rating outlook reflects A.M. Best’s concerns over New Era Group’s elevated level of risk within its investment portfolio including below investment grade bonds, declining risk-adjusted capital position due to the credit migration in its bond portfolio, a rise in delinquencies in its commercial mortgage loans and challenges in its Medicare supplement line of business due to its competitive nature. New Era Group has a large commercial loan portfolio in Texas representing a significant exposure relative to its capital and surplus as of September 30, 2009, which has recorded a rise in delinquencies in 2009. The below investment grade portfolio has grown over the last several years and represents an increased exposure to capital and surplus, with a large exposure to CDO’s, which currently does not have an active market; thus, posing liquidity challenges in the event the group needs to sell these securities. As a result of the elevated investment risks, A.M. Best believes that the consolidated risk-adjusted capitalization of the group may decline in 2009 from 2008. Although New Era Group had certain impairments in 2007 through 2009, A.M. Best notes that the company may be subject to additional write-downs. However, A.M. Best notes that any additional write-downs may have minimum impact on the group’s capital and surplus funds. In 2008, New Era Group borrowed over $8.5 million in 2008 from the Federal Home Loan Bank of Dallas for the purpose of increasing its investment returns. Additionally, New Era Group has $5 million in debt at the holding company and a $10 million dollar surplus note at the operating company, which total over $15 million in debt, while the group’s capital and surplus as of September 30, 2009 was $45.1 million. Also, due to a rise in its incurred loss ratio in recent years, New Era Group has experienced a decline in its Medicare supplement earnings and could face challenges going forward as the competition remains intense in the senior marketplace. New Era Group’s ratings continue to recognize its consistently positive net gains from its operations, its core lines of business of Medicare supplement and fixed annuities and its continuing profitable niche in the senior marketplace. For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit 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 www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. A.M. Best CompanyAnalysts:Steven Crotteau, 908-439-2200, ext. [email protected] Shah, 908-439-2200, ext. [email protected] Relations:Jim Peavy, 908-439-2200, ext. [email protected] Morrow, 908-439-2200, ext. [email protected] Source: A.M. Best Company