EquiTrust Life Insurance Co. Ratings Raised To ‘A-‘ From ‘BBB+’ On Stronger Capital, Outlook Stable
NEW YORK (S&P Global Ratings) July 18, 2024--S&P Global Ratings said today it raised its issuer credit and financial strength ratings on EquiTrust Life Insurance Co. to 'A-' from 'BBB+'. The outlook is stable.
Impact Of Revised Capital Model Criteria
The implementation of our revised criteria for analyzing insurers' risk-based capital does not directly lead to any rating changes. . However, Equitrust's capital position has improved organically leading to a more significant redundancy at the 99.80% confidence level, commensurate with 'Strong' capital and earnings.
The stable outlook reflects our expectation that the group will maintain its capital adequacy at least at the substantial (or 99.80%) confidence level, while balancing growth and other strategic initiatives. We also expect it to continue prudent underwriting standards and avoid any undue credit or asset-liability management risks within its investment portfolio.
We could lower our ratings in the next 12-24 months if, contrary to our expectations:
- We expect the company's capital adequacy to fall below the 99.80% confidence level on a sustained basis;
- If EquiTrust increases its risk position or financial risk to a level that we think is inconsistent with its risk management strategy, policy, or ability; or
- If profitability weakens and consistently lags that of similarly rated peers, which could happen due to new business strain as EquiTrust grows.
We do not expect to raise the ratings on EquiTrust in the next 12-24 months, because we believe the company's business and financial risk profile have limited upside potential. However, we could raise the ratings if the company is able to demonstrate meaningful product diversification and consistently outperforms similarly rated peers.
We base the upgrade of EquiTrust on the company's growth in capital in recent years. We now view capital and earnings as strong, per our risk-based capital model, and we consider management's commitment to maintain a redundancy at the 99.80% confidence level.
Our satisfactory view of EquiTrust's business risk reflects its top 20 market position in the highly competitive U.S. fixed-indexed annuity market, strong sales and operating margins, and geographic diversity in the U.S. While the company lacks product diversity compared to higher-rated peers, it recently introduced a new long-term care hybrid annuity that has been in the market for approximately 18 months but has not yet meaningfully contributed to earnings. EquiTrust relies on an extensive network of independent marketing organizations and agencies to distribute its life and annuity products, which provide value to its target market via simple product features and high-touch customer service.
The company has a well-diversified investment portfolio with 'A-' average credit quality and adequate liquidity. We believe the company has reasonable risk controls in place to handle investment and liquidity risks and remain within its stated tolerance levels. Its low-risk products and use of dynamic hedging for liabilities support our view of its moderately low risk exposure.
EquiTrust's funding structure is neutral to the rating. Currently it has no debt outstanding, and we view earnings as sufficient to fund business growth.
