Press Release, March 16, 2010
A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of Primerica Life Insurance Company (Boston, MA) and its subsidiaries: National Benefit Life Insurance Company (Long Island City, NY) and Primerica Life Insurance Company of Canada (Mississauga, Ontario) (collectively known as Primerica Life). Concurrently, A.M. Best has assigned an ICR of “a-” to Primerica Inc. (Primerica) (Duluth, GA), which is the newly established holding company for Primerica Life. The outlook assigned to all ratings is negative.
The rating actions reflect A.M. Best's expectations that Primerica's business model and top line growth will remain relatively unaffected by Citigroup Inc.'s [NYSE: C] planned initial public offering (IPO) of Primerica later this month. Based upon discussions with management representatives from both Citigroup and Primerica, A.M. Best anticipates that Primerica Life also will continue to be well capitalized on a risk-adjusted basis post IPO, despite the fact that more than 80% of its inforce life insurance business will be reinsured back to Citigroup. Furthermore, while the absolute level of assets and reserves will be substantially lower due to the reinsurance of the inforce, Primerica Life is expected to continue its conservative investment strategy while remaining profitable on a GAAP basis.
Partially mitigating these positive rating factors is the expectation that the combination of a relatively small block of retained inforce business, together with the expected new business expense strain from Primerica Life's sizable production of level premium term life, will result in several years of operating losses on a statutory basis. While these losses are likely to diminish capital and surplus over the near term, A.M. Best anticipates that the high level of initial statutory capitalization will be sufficient to absorb these losses until such time as the company begins to generate statutory operating gains.
Additionally, A.M. Best notes that although Primerica is expected to issue $300 million of debt to Citigroup in conjunction with the IPO, the resulting financial leverage —roughly 20% at the outset — and projected interest coverage are within the guidelines for the current ratings. The note is expected to be serviced through fee-based revenues from Primerica's non-insurance operations, and no material dividends are anticipated from the life companies in the near to medium term.
A.M. Best further notes that these rating actions are predicated upon the expectation that Citigroup's planned IPO of Primerica transpires as planned. Any substantial alteration to the proposed post IPO structure or financial condition of Primerica and its subsidiaries would likely prompt a reassessment of the ratings.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.