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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 20, 2014 02:04 PM (EST)
A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of A- (Excellent) and the issuer credit ratings of "a-" of Delaware Life Insurance Company (Wilmington, DE) and Delaware Life Insurance Company of New York (Delaware Life of New York) (New York, NY) (collectively referred to as Delaware Life).
The revision to the outlook reflects the execution of an external capital support agreement to maintain a minimum prescribed risk-based capital level, strong risk-adjusted capitalization, positive statutory operating results and stabilization of its in-force acquired business blocks from Sun Life Financial Inc. While Delaware Life's business strategy is evolving, it has made progress in conserving its sizeable in-force blocks of variable and fixed annuities since its August 2013 acquisition. Favorable persistency, coupled with strong equity markets, has contributed to strong operating earnings, while Delaware Life executes the process of refreshing and reinvigorating its distribution and product profile. Currently, one product is offered, a multi-year guaranteed fixed annuity, which has experienced strong sales growth in 2014. Delaware Life plans to introduce new life and annuity products in the near term, which is expected to add product diversity to its business profile. The ratings also reflect the explicit guarantee provided for Delaware Life of New York through the establishment of roughly $200 million in high quality segregated trust assets to support policyholders, held at an intermediate holding company.
These strengths are partially offset by the challenges associated with rebuilding inactive distribution networks while expanding into new channels and developing expanded product offerings. Additionally, Delaware Life's reserve profile is highly correlated to the equity market and interest rate movements within its acquired blocks of business, although equity risk is largely offset by a long-standing and well-executed hedge program. Additionally, the ratings reflect a somewhat differentiated investment strategy, which utilizes investments sourced through related or affiliated parties with increased holdings in structured securities, Schedule BA assets and high yielding short term loans. While the structured asset-backed securities portfolio has the benefit of providing floating rate protection, A.M. Best will continue to assess the group's overall investment strategy with respect to its credit profile, valuation and its liquidity profile. Finally, the ratings acknowledge the need for the group to complete the integration of various business functions.
It is unlikely that positive rating actions will occur in the near to mid-term. Factors that could cause downward rating pressure are a significant decrease in risk-adjusted capitalization, increased utilization of affiliate and related party sourced investments, increased exposure to high-risk assets, aggressive premium growth, increased financial leverage or a decline in operating performance that does not meet A.M. Best's expectations.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
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