For the second time this year, A.M. Best Co. has downgraded National Life Insurance Company’s ratings, this time to C++ (Marginal) from B- (Fair) and issuer credit rating to “b” from “bb-.” The agency left the door open to further downgrades Friday.
The company, which in May was court-ordered to operate under the Puerto Rico Insurance Commissioner’s supervision, has been having a tough financial time as of late.
“These rating actions reflect NALIC’s low risk-adjusted capitalization, its constrained financial flexibility both at the operating and parent levels and the uncertainty surrounding its life insurance operations in its core Puerto Rican market,” the prestigious credit ratings agency said.
“A.M. Best views NALIC’s financial flexibility as marginal, due to the cross ownership of its privately held parent as well as NALIC’s sister company, National Insurance Company, which was placed under an order of rehabilitation by the Office of the Commission of Insurance of Puerto Rico.
“NALIC also maintains a high level of receivables relative to its capital position. While NALIC has shown improvement from its low level of risk-adjusted capital in the first quarter of 2011, this increase was primarily due to significant use of reinsurance,” the agency said.
A.M. Best has been monitoring NALIC’s performance closely, deciding to downgrade its financial standing the first time this year back in April.
The insurance company’s problems are not limited to Puerto Rico, but have spread to its Florida subsidiary, which earlier this month was also ordered by a court to turn over its day-to-day operations to the state’s Department of Financial Services, as News is my Business reported.
In Puerto Rico, the court-appointed interim management told employees and business partners that liquidation was not an option, and that steps were being taken to heal NALIC’s operational problems.
A.M. Best has apparently taken note of that.
“Partially offsetting these rating factors are management’s initiatives intended to improve operating performance and capitalization, such as implementing various quota-share agreements, decreasing administrative expenses and strategic plans for capital enhancement,” the agency said. “A.M. Best notes that the aforementioned initiatives did have a positive impact on financial results, which was evident in NALIC’s second quarter 2011 statutory results.”