OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has upgraded the Financial Strength Rating (FSR) to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb” (Good) from “bbb-” (Good) of Nassau Life Insurance Company, Nassau Life and Annuity Company and Nassau Life Insurance Company of Kansas (Overland Park, KS). All of the aforementioned companies are collectively referred to as the Nassau Insurance Group (Nassau).
In addition, AM Best has upgraded the Long-Term ICR to “bb” (Fair) from “b+” (Marginal) of Nassau Companies of New York, Inc., along with its existing Long-Term Issue Credit Ratings (Long-Term IRs). All companies are headquartered in Hartford, CT, unless otherwise specified. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. (See below for a detailed listing of the Long-Term IRs.)
The ratings reflect Nassau’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating upgrades reflect the group’s improved risk profile and strengthened levels of risk-adjusted capitalization on a GAAP consolidated basis, as measured by Best’s Capital Adequacy Ratio (BCAR), due to the transfer of PHL Variable Insurance Company to a holding company that is not owned or controlled by Nassau Financial Group, L.P. or any of its subsidiaries. PHL Variable Insurance Company held a significant amount of high interest rate universal life insurance policies with secondary guarantees that have been a primary reason for significant earnings volatility for the organization over the past several years. The group’s risk-adjusted capital levels also were bolstered by a significant equity infusion from an outside investor. Furthermore, Nassau’s capital and surplus position has increased significantly through the third quarter of 2021 due to the retention of improving operating results that have benefited from reduced mortality, a rebound in investment income and increased earnings from the Foresters Life Insurance and Annuity Company (FLIAC) acquisition that closed in 2020. As a result, the company’s financial leverage ratio has improved substantially, and the amount of intangible assets has been reduced to approximately 75% of shareholder equity.
While Nassau has experienced positive earnings in 2021, net income has historically experienced significant fluctuations on a GAAP and statutory accounting basis due to reinsurance activity, declining investment income and increased mortality within its legacy life insurance business along with other non-recurring expenses. AM Best notes that the lower earnings in recent periods and the use of excess capital for the FLIAC acquisition substantially reduced the company’s statutory capital position and constrained its financial flexibility. The company also maintains exposure to structured securities within its investment portfolio (approximately 20%), including collateralized loan obligations, which includes an elevated exposure to lower-rated tranches. AM Best believes that this portion of the investment portfolio would be less liquid during stress events. However, the group experienced only a moderate amount of impairments in its general account investment portfolio in 2020 and through third-quarter 2021 and currently maintains a significant unrealized gain position.
Management has made significant progress in recent years, streamlining operations and strengthening its ERM framework and capabilities. This includes Nassau’s focus on environmental, social and governance (ESG) initiatives, which includes a diversity, equity and inclusion program and supporting environmentally focused organizations.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
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