AM Best has assigned a Financial Strength Rating of B+ (Good) and Long Term Issuer Credit Rating of “bbb-” to Town & Country Life Insurance Company (Town & Country) (Salt Lake City, Utah). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Town & Country’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Town & Country maintains the strongest level of risk-adjusted capitalization, as measured by AM Best’s Capital Adequacy Ratio (BCAR), for its insurance and investment risks. Absolute capital and surplus has been relatively stable with no significant increases or decreases in the company’s history. Town & Country’s capital and surplus is considered to be low at $7.2 million through third-quarter 2020. This low level of capital and surplus may limit the company’s ability to pivot during adverse market or economic conditions and leaves the company with greater exposure to the potential impacts of operating losses. Town & Country’s balance sheet assessment is also supported by its conservative investment portfolio and consistently favorable liquidity levels. Mitigating the company’s balance sheet strength assessment is its potentially high reinsurance dependence resulting from the launch of its multiyear guaranteed annuity (MYGA) product.
The ratings of Town & Country also reflect its stable operating results. The company has reported annual pre-tax net operating gains over the last five years and through third-quarter 2020, resulting from a combination of underwriting income coupled with net investment income. Although Town & Country does not rely on investment results to remain profitable, the company has maintained its profitability in the low interest rate environment. While underwriting results have fluctuated slightly, they have been favorable for the past five years.
Town & Country’s strengths are primarily offset by a less-diversified business profile as it relates to product mix and geographic footprint, with 80% of Town & Country’s net premiums written (NPW) attributable to its group dental product and 18% to its group vision product. Furthermore, 97% of NPW as of 2020 is allocated to Utah. These factors may be alleviated with the launch of the MYGA product.
Town & Country has an evolving ERM program that is appropriate for its current risk profile. Town & Country is a conservative, organically grown company with low risks and a proven track record of stable performance. However, as the company progresses into the annuity business with its MYGA product, a more comprehensive and proven ERM program would be more suitable for the increased risk profile of the company.
While the rating outlooks are stable, future positive rating actions may result from significant product and geographic diversification. Negative rating actions could result from a substantial decline in premiums and a significant deterioration of risk-adjusted capital.
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Senior Financial Analyst
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