The ratings reflect SFG’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
SFG maintains a very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), despite a noticeable decline over the past year due to a significant increase in annuity sales and a strategic decision to acquire lower rated corporate bonds during the pandemic. The overall balance sheet strength has been supported historically by increasing levels of capital and surplus and a relatively high quality general account investment portfolio. In addition, SFG maintains very good liquidity with strong cash flows from operations, access to the
SFG benefits from a diverse distribution platform, which includes personal producing agents, independent marketing organizations, broker/dealers and banks, as well as credit unions. In addition, SFG has increased its focus and expansion into the registered investment adviser channel over the past year. The group also offers a wide array of product offerings with generally favorable market positions in its core lines of business and has recently entered the pension risk transfer market with some initial success. This diversification, along with historical investments in digital capabilities, has enabled the company to significantly increase premiums over the past year despite industry-wide sales disruptions from the pandemic and is supportive of the current business profile assessment. In addition, SFG maintains an extensive enterprise risk management program that is continually evolving and is commensurate with its risk profile.
While SFG has generally produced solid earnings in the past five years, they have been pressured by spread compression within the annuity line of business. Additionally, life insurance-related earnings have experienced some volatility due to lack of scale and spread compression within its interest-sensitive universal life insurance segment, along with an increase in mortality over the past year due to the COVID-19 pandemic. Although SFG’s general account investment portfolio experienced an elevated level of impairments over the past year, it was primarily confined to investments within airline securitizations in its asset-backed securities portfolio as well as its investments in the energy sector, two areas hardest hit by the pandemic. AM Best believes that SFG may experience further impairments over the near to medium term but will remain within a manageable range for the group.
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