OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating (FSR) to C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to ‚Äúb-‚ÄĚ from ‚Äúb+‚ÄĚ of Atlanta Life Insurance Company (ALIC) (Atlanta, GA). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR remains negative. ALIC is the life insurance member of Atlanta Life Financial Group, Inc. (ALFG) and is the only remaining active entity within the group.
The ratings reflect ALIC‚Äôs balance sheet strength, which AM Best categorizes as adequate, as well as its weak operating performance, very limited business profile and weak enterprise risk management.
The rating downgrades reflect ALIC‚Äôs significant operating losses in 2017 and 2018 despite a onetime favorable benefit due to the merger of the company‚Äôs two retirement plans, which removed the pension liability from ALIC‚Äôs financial statements once the plans were combined. Despite the plan merger, ALIC still remained liable in the unlikely event that the plans assets were insufficient to fund its liabilities. On a normalized basis, excluding the onetime pension gain and a onetime write-off of a reinsurance contract, operating losses reflect high expenses, unfavorable investment yields and the impact of a contracting balance sheet. The write-off of the reinsurance contract, although modest in terms of operating results, is reflected in AM Best‚Äôs ERM assessment of weak given the lack of an adequate risk-control framework, which must be addressed going forward by the new chief financial officer and chief executive officer.
Despite the company retaining a favorable risk-adjusted capital position, the overall balance sheet assessment continues to be stressed by a low level of absolute capital as the result of a write-off of an inter-company receivable from ALFG, a lack of liquidity, high reinsurance leverage and unfavorable cash-flow testing results. While the balance sheet assessment remains adequate and within AM Best‚Äôs prior expectations, the company‚Äôs operating cash flows are negative and AM Best anticipates that if the company‚Äôs ambitious business plans are not realized, future risk-adjusted capitalization levels likely will continue to decline over time given the expense structure of the company. Management has laid out substantial business development plans with a focus on assuming group life insurance business from new and existing carrier relationships, which promotes its marketing advantage as an African-American reinsurance carrier. AM Best notes that projected premium levels substantially exceed historical norms and will be a challenge to achieve. As a result, ALIC‚Äôs business profile assessment remains very limited with a noted lack of historical data quality, virtually no new business growth, limited market share and limited product diversification.
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