A.M. Best Upgrades Ratings of Illinois Mutual Life Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to “bbb” from “bbb-” of Illinois Mutual Life Insurance Company(Illinois Mutual) (Peoria, IL). The outlook for both ratings is stable.

The rating actions reflect Illinois Mutual’s significant improvement in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) model. This improvement is due primarily to both increases in surplus as well as asset de-risking strategies implemented by the company in conjunction with its outside asset manager. This has improved the quality and diversification of Illinois Mutual’s fixed-income investment portfolio, significantly reduced its exposure to more risky asset classes and enhanced its asset liability management process. A.M. Best notes that Illinois Mutual’s fixed-income investment portfolio is currently in a large net unrealized gain position and investment losses have dramatically declined.

The rating actions also recognize Illinois Mutual’s solid overall net operating performance derived primarily from its core disability income segment that has experienced favorable morbidity. The company’s closed block of fixed annuities also has contributed to overall earnings enhanced by favorable persistency and active spread management. Additionally, the rating actions acknowledge Illinois Mutual’s diverse business profile, whereby it markets its core individual disability income and traditional forms of ordinary life products mainly to the middle income market through multiple distribution channels. In 2010, the company voluntarily ceased writing new individual annuity business; however, it continues to administer its existing annuity business. Illinois Mutual has achieved new sales growth in its core product segments in recent years, although current year results have been dampened somewhat by the general conditions of the economy and restructuring strategies within its distribution channels.

As a mutual life insurance company, Illinois Mutual is limited in its access to capital and relies heavily on retained earnings to increase surplus and fund its growth initiatives. A.M. Best notes that despite the recent increases, surplus remains below historical levels. A.M. Best believes that the company may be challenged to sustain and improve its earnings, as the combination of expense strain associated with anticipated new business growth and the challenges of the persistent low interest rate environment on the company’s interest-sensitive insurance liabilities and its investment portfolio may dampen earnings, thus slowing growth in its surplus. Furthermore, the impact from recently adopted statutory accounting practices related to pensions and other post retirement benefits also could dampen the company’s surplus growth.

Given recent positive movement in Illinois Mutual’s ratings, A.M. Best believes the company is well positioned at its current rating level for the near term. Key rating factors that could lead to negative rating actions include a significant and sustained decline in its risk-adjusted capitalization as measured by the BCAR model, net operating performance results that do not meet A.M. Best’s expectations or a material shift in its business profile skewed more heavily to less creditworthy lines of business.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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A.M. Best Co.
Steven Faulks, 908-439-2200, ext. 5035
Senior Financial Analyst
steven.faulks@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
thomas.rosendale@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Co.