OLDWICK, N.J. - (Business Wire) A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and the issuer credit rating to “bbb+” from “a-” of Illinois Mutual Life Insurance Company (Illinois Mutual) (Peoria, IL). The outlook has been revised to stable from negative. These rating actions reflect A.M. Best’s concerns over Illinois Mutual’s modest risk-adjusted capital position, elevated level of risk within its investment portfolio, limited financial flexibility and its moderated operating results in recent years.
Due primarily to impairments and unrealized losses in both its corporate fixed income and structured securities portfolios, Illinois Mutual has recorded a reduction in its total capital level. This decline in surplus, coupled with its investment in structured securities such as collateralized debt obligations and credit default swaps and its position in below investment grade bonds due to credit migration has impacted Illinois Mutual’s risk-adjusted capital position.
Although Illinois Mutual has recognized impairments in 2008 and 2009, A.M. Best notes that the company may be subject to additional write-downs, further stressing its capital position. A.M. Best notes the absence of liquidity in certain of these structured assets. In addition, Illinois Mutual’s exposure to commercial mortgage loans, although the portfolio is currently performing well and the size is intentionally being reduced, it represents an area of potential stress given the challenges in the commercial mortgage lending arena.
Additionally, the company may face a challenge in managing surrender activity in the interest-sensitive annuities that are reaching renewal status in a low interest rate environment. However, current activity is well within pricing. Earnings in the near term have moderated due to lower investment income and other operating issues.
Illinois Mutual’s ratings continue to recognize its consistently positive net gains from its operations, diversified lines of business, its growing life insurance business and its continuing profitable niche in the disability insurance marketplace. Illinois Mutual has taken proactive steps in reducing unit costs and managing the remaining risk within its structured product portfolio.
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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.
A.M. Best Co.
Analysts:
Robert Stewart, 908-439-2200, ext. 5232
robert.stewart@ambest.com
or
Raj Shah, 908-439-2200, ext. 5409
raj.shah@ambest.com
or
Public Relations:
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com
