AM Best Revises Outlooks to Positive for Fidelity & Guaranty Life Holdings, Inc. and Its Life/Health Subsidiaries
December 27, 2022 by AM Best
OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Fidelity & Guaranty Life Insurance Company (Des Moines, IA) and Fidelity & Guaranty Life Insurance Company of New York, (New York, NY). These subsidiaries of Fidelity & Guaranty Life Holdings, Inc. are referred to collectively as Fidelity & Guaranty Life Group (FGL). In addition, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) and the Long-Term Issue Credit Rating of “bbb-” (Good) on the $550 million 5.5% senior unsecured notes, due 2025 of Fidelity & Guaranty Life Holdings, Inc. (FGLH) (Delaware). The outlook of these Credit Ratings (ratings) has been revised to positive from stable.
The ratings reflect FGL’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The positive outlooks reflect FGL’s expanding business profile and the diversification benefits provided by Fidelity National Financial, Inc. (FNF), which also guarantees the group’s senior notes and has contributed $400 million of capital via the conversion of a $400 million intercompany loan to equity over the past year. FNF also has integrated several functions with FGL including legal, cyber security and investor and external relations. FGL generally has maintained a top five market position within its core fixed-indexed annuity segment through the independent agent channel. Strong sales have continued to be enhanced by the addition of several new distribution channels that include regional banks and broker dealers. In addition, FGL has recently entered institutional markets with pension risk transfer and funding agreement backed notes and has closed on several transactions successfully over the past year. FGL also has experienced favorable growth in its indexed universal life insurance business.
FGL maintains a very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), due to the retention of favorable earnings and the aforementioned capital contribution from its parent. FGL also maintains adequate liquidity due to strong operating cash flows and good surrender protection on its in-force annuity blocks of business. In addition, FGL has good financial flexibility, with access to the financial markets through its holding company, F&G Annuities and Life, Inc. (F&G). AM Best also notes that FNF recently spun off 15% of its ownership in FGL via a taxable dividend to FNF shareholders in order to enhance and more fully recognize the overall market value for FNF shareholders, and allow investors to invest directly in F&G. There are no expected changes in strategy, operations or management at FNF or FGL as a result of the transaction.
While risk-adjusted capital remains very strong, the group’s overall quality of capital is diminished by the significant increase in reinsurance leverage and the use of captive financial solutions, as well as the use of surplus notes. While FGL has demonstrated good financial flexibility, execution risks remain in accessing new capital to fund its growth, and AM Best will continue to monitor the group’s ability to maintain its current level of risk-adjusted capitalization. The group also has experienced some volatility within its statutory net operating results due to reinsurance transactions, impacts from market volatility and other one-time events. However, interest rate spreads have remained favorable due to strong investment yields that have benefited from the recent rise in interest rates and the repositioning of its investment portfolio into higher-yielding structured securities. AM Best expects overall statutory and GAAP operating results to improve over the near to medium term due to continued premium growth and the maintenance of adequate interest rate spreads within its core fixed annuity business.
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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