S&P Upgrades American Equity Investent Life Holding & Ins. Cos
August 13, 2015 by Bloomberg
The following is a press release from Standard & Poor’s:
— American Equity improved its capital above our ‘A’ target level
through deleveraging and retaining earnings.
— We are revising our financial risk profile on the company to strong
from moderately strong and raising our ratings on the company to ‘A-‘ from
‘BBB+’.
— The stable outlook reflects stronger capitalization, improved capital
quality, and our expectation for continued strong operating performance in the
fixed-annuity segment.
NEW YORK (Standard & Poor’s) Aug. 5, 2015–Standard & Poor’s Ratings Services
said today that it raised its long-term counterparty credit and financial
strength ratings on American Equity Investment Life Insurance Co. to ‘A-‘ from
‘BBB+’ and its counterparty credit rating on holding company, American Equity
Investment Life Holding Co., to ‘BBB-‘ from ‘BB+’. The outlook is stable.
“The upgrade is based on American Equity having strengthened its
capital–primarily by deleveraging and growing retained earnings–to above our
‘A’ target level,” said Standard & Poor’s credit analyst Beth Campbell. We
expect the company to sustain capital at or above the current level during the
next two-to-three years, and to fund its growth during the next two years
largely from equity sources (including a recently announced common stock
offering). Under our base-case scenario, we expect the company to continue to
grow earnings while maintaining a leading position in the fixed-annuity market.
We revised our financial risk profile on the company to strong from moderately
strong. Capital strength is supported by strong and expanding earnings from
its fixed-indexed annuity (FIA) -focused business, which is a market segment
that has grown faster than the life insurance industry overall in recent years.
Supporting the ratings are, in our view, American Equity’s adequate enterprise
risk management (ERM) program, exceptional liquidity benefiting from
relatively stable liabilities, and satisfactory management and governance
practices. The moderate and evolving sophistication of its ERM appropriately
reflects the company’s almost exclusive focus on fixed annuities.
The outlook is stable. We expect American Equity to maintain a leading
position in the fixed-annuity market and in FIAs in particular. We also expect
the company to continue to grow profitably and sustain capital adequacy at our
‘A’ target level during the next two-to-three years. Under our base-case
economic assumptions, we assume American Equity will generate generally
accepted accounting principles operating income of $180 million to $190
million this year. We also expect total financial leverage (debt plus hybrids
to capital) to decline to the low-30% area, with fixed-charge coverage of more
than 4x.
We could lower the ratings if capital and earnings were to weaken such that
capitalization deteriorates to our target ‘BBB’ confidence level for a
protracted period of time.
Further upside to the rating is unlikely. Even if capitalization were to
improve to the ‘AA’ level, the company’s narrow product concentration limits
our consideration of its business risk profile to satisfactory.
RELATED CRITERIA AND RESEARCH
— Methodology For Assessing Capital Charges For U.S. RMBS And CMBS
Securities Held By Insurance Companies, Aug. 29, 2014
— Group Rating Methodology, Nov. 19, 2013
— Insurers: Rating Methodology, May 7, 2013
— Enterprise Risk Management, May 7, 2013
— Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
— Methodology For Assessing Capital Charges For Commercial Mortgage
Loans Held By U.S. Insurance Companies, May 31, 2012
— Refined Methodology And Assumptions For Analyzing Insurer Capital
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
— Use Of CreditWatch And Outlooks, Sept. 14, 2009
— Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
— Criteria: Insurance: Life: Liquidity, April 22, 2004
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor’s public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
Primary Credit Analyst: Elizabeth A Campbell, New York (1) 212-438-2415;
elizabeth.campbell@standardandpoors.com
Secondary Contact: Donald H Chu, CFA, Toronto (1) 416-507-2506;
donald.chu@standardandpoors.com
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