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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 17, 2004 12:00 AM (EST)
A.M. Best Co. has downgraded the financial strength rating to A+ (Superior) from A++ (Superior) of Minnesota Life Insurance Company (Minnesota Life) (St. Paul, MN). The financial strength rating of A+ (Superior) has been extended to the company's strategic subsidiary, Northstar Life Insurance Company (Ithaca, NY). Additionally, A.M. Best has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of Securian Life Insurance Company (St. Paul, MN), an affiliate of Minnesota Life. Concurrently, A.M. Best has downgraded the debt rating to "a+" from "aa-" on Minnesota Life's existing surplus notes. All ratings have a stable outlook.
These rating actions reflect Minnesota Life's modest operating performance in the past three years as core operating earnings on both a statutory and GAAP basis have trailed that of both its similarly-rated peers and its own historical performance. Moreover, significant realized and unrealized capital losses in the company's private equity and fixed income portfolios have negatively impacted its surplus position over the same period. Minnesota Life's investment performance improved in 2003, and its capital level, on both an absolute and a risk-adjusted basis, is solid for an A+ rated company. A.M. Best also notes the competitive pressures the company faces in its core business lines-some of which have experienced limited sales growth-and the potential ramifications of modest scale in some of the core businesses in which the company competes.
Minnesota Life is a well-established and respected competitor in its major businesses with a strong operating profile. The ratings acknowledge Minnesota Life's diversified business lines and earnings sources, established distribution channels, strong balance sheet and sound risk-adjusted capitalization. The ratings also recognize the company's conservative operating strategies, effective asset/liability management and history of avoiding significant business setbacks. However, scale has become an increasingly important dynamic for competing effectively in some of its businesses. Minnesota Life's overall market presence is not as broad as some A+ rated groups. Therefore, earnings in its various businesses may be challenged in the long run as it competes against larger and better known competitors in the insurance and financial services industry.
Minnesota Life maintains a leading position in the mortgage term life segment, an established position in the individual life and annuity market, and a niche presence in the group life, credit union and corporate pension markets. These lines have achieved solid operating performance supported by strong persistency, high retention of field associates, value-added products and services and superior client satisfaction. A.M. Best believes Minnesota Life will continue to generate consistent operating returns by employing defensible and sustainable strategies in its business lines and by managing the company in a conservative manner.
Sales, retention and marketing expenses of Minnesota Life's mortgage and credit lines are impacted by today's low interest rates and high refinancing activity. Additionally, the company may be challenged to improve sales and profitability in its individual life and annuity business unit, which generates the bulk of its earnings, and to maintain favorable margins given its shift in business mix to lower margin variable products. Nevertheless, A.M. Best acknowledges that Minnesota Life has been operating successfully in this challenging environment.
For a list of A.M. Best's debt ratings, please visit Best's Debt Rating Center.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.