AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Primerica Life Insurance Company (Nashville, TN) and its affiliates, National Benefit Life Insurance Company (Long Island City, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario), collectively referred to as Primerica Life. Additionally, AM Best has affirmed the Long-Term ICR of “a-” of Primerica, Inc. (Primerica) (headquartered in Duluth, GA) [NYSE: PRI], which is the holding company for the group’s insurance and non-insurance operating companies. AM Best also has affirmed the Long-Term Issue Credit Rating of “a-” on $375 million 4.75% senior unsecured notes due 2022 of Primerica. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Primerica Life’s balance sheet strength, which AM Best categorizes as very strong, as well as its very strong operating performance, favorable business profile and appropriate enterprise risk management.
Primerica Life’s ratings recognize the group’s favorable risk-adjusted capitalization and generally high quality investment portfolio, as well as its favorable reserve profile, which is almost exclusively composed of term life insurance and is viewed as low risk on AM Best’s product continuum. However, the group continues to maintain higher allocations to NAIC class 2 bonds relative to industry averages. Risk-adjusted capitalization ratios are dampened qualitatively by heavy reliance on captive reinsurance solutions to fund its Regulation XXX reserves, which will moderate as new business is issued under principles-based reserving practices. The ratings also reflect strong liquidity and positive financial flexibility, as well as solid financial leverage and interest coverage ratios that are within AM Best’s guidelines for these ratings.
Primerica Life’s earnings have been consistent with AM Best’s expectations, as the group continuously has generated solid levels of GAAP and statutory net income due to favorable loss ratios, although there has been some uptick in claims as a result of COVID-19. Premium growth has been generally favorable, and the company has been able to pivot sales efforts during the pandemic successfully. Premium growth has been offset partially by higher-than-industry lapse rates, and general expenses per policy remain on an upward trend. Primerica Life’s operating profile benefits from non-insurance revenues that represent a substantial portion of overall GAAP revenues through the sale of mutual funds and other investment savings products, along with distribution of other manufacturers’ life and annuity products, which generates fee-based revenues and provides a source of earnings diversification.
Primerica Life’s ratings also recognize its status as one of the largest writers of term life insurance in the United States, with its continued strong market position attributable to its dedicated distribution affiliate, Primerica Financial Services, LLC. This integrated distribution includes slightly over 130,000 life agents with almost 26,000 mutual fund-licensed representatives across the country. Primerica Life’s business profile in the United States and Canada is reinforced further by its experienced management team, which successfully built and supports its sizable sales force. However, its business model is heavily reliant upon the need to continuously recruit agents to maintain its competitive advantage, and initially the COVID-19 pandemic created some challenges with agent licensing, which are now normalizing. Offsetting rating factors is Primerica Life’s somewhat narrow insurance business profile focus, which is almost exclusively focused on term life products. However, Primerica continues to expand its affiliated relationships, and AM Best notes a new mortgage brokerage program initiated in partnership with Quicken Loans, whereby Primerica’s licensed Mortgage Loan Originators can now broker mortgage loans in an effort to further diversify its business profile.
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