CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 25, 2014 03:09 PM (EST)
A.M. Best has assigned a financial strength rating of B (Fair) and an issuer credit rating of "bb" to Landmark Life Insurance Company (Landmark) (Brownwood, TX). The outlook assigned to both ratings is stable.
The rating assignments reflect the relatively modest level of earnings in Landmark's core life business, its limited financial flexibility and its narrow market profile. The company's insurance activities are limited in scope and geographically concentrated. The company's ongoing challenge has been to generate a sufficient level of earnings from its life operations while maintaining an adequate level of risk-adjusted capitalization. In 2013, net income was $290,000, the lowest level in five years. Going forward, despite significant use of third-party coinsurance, the surplus strain associated with its new life business will likely prevent material organic capital and surplus growth via retained earnings from its core life operations. Landmark also maintains a $16 million block of individual flexible premium deferred annuities, although it no longer actively writes annuity business. A.M. Best notes that the company's entire in-force fixed deferred annuity block is subject to 3% minimum interest rate guarantees, which limits its earning capacity and subjects the block to further spread compression as interest rates continue to remain low.
Offsetting rating factors include a recent history of modest growth in direct written premium in its relatively low-risk core life business, adequate risk-adjusted capitalization for its assigned ratings and an initiative to diversify its revenue stream by building a third-party administration (TPA) business. Additionally, despite a regional geographic concentration in its direct mortgage loan portfolio, Landmark's general account investment portfolio maintains a relatively modest level of credit risk. The company also has access to an external liquidity source via its membership in the Federal Home Loan Bank.
In 2013, direct written premium for its ordinary life line of business was $16 million, the highest level in five years. In 2009, Landmark began to supplement its life operations by providing TPA services. In 2013, fees generated from its TPA services were $2.4 million, an 85% increase from the $1.3 million generated in 2012. As Landmark continues to expand its TPA business, the associated income should help to partially offset the modest projected earnings from its core life operations.
A.M. Best believes that a positive rating action for Landmark is unlikely over the near term. Positive rating movement would be possible over a longer time horizon should the company experience material organic capital and earnings growth that results in an improvement in risk-adjusted capitalization. Factors that could result in a negative rating action include a significant decline in risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), or net operating performance that falls markedly short of 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:
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.