AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating of B++ (Good) of EquiTrust Life Insurance Company (EquiTrust).
The outlook of these Credit Ratings (ratings) is stable.
The Credit Ratings (ratings) reflect EquiTrust’s balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The Long-Term ICR downgrade reflects a weak Best’s Capital Adequacy Ratio (BCAR) score, high asset concentrations and a lack of visibility into the holding company. The decline in risk-adjusted capital reflects historically high dividend payout ratios, a high level of riskier asset classes and balance sheet growth that has outpaced capital growth.
Additionally, EquiTrust’s product portfolio is narrow, with a heavy focus on the competitive fixed indexed and multi-year guarantee (MYGA) annuity markets. AM Best will monitor management’s intention to proactively monitor its BCAR scores while reducing dividend support to its parent in order to allow future capital and surplus to grow and support an improved risk-adjusted capital position.
Offsetting rating factors include favorable operating performance relative to peers with stable spreads, as management has been disciplined in reducing MYGA sales in the highly competitive market given modest spreads.
EquiTrust has an inforce annuity book that is well-protected against disintermediation risk through market value adjustments and surrender charge protection. EquiTrust also has been improving its product diversification through an increased focus on indexed universal life, although concentration in this line remains modest.
Additionally, EquiTrust has been proactive at addressing expense efficiencies to improve its operating profile.