|[August 28, 2013]
Fitch Affirms Pan-American Life's IFS Ratings; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS)
rating of Pan-American Life Insurance Company (PALIC) and its wholly
owned subsidiary, Pan-American Assurance Company (PAAC), collectively
referred to as Pan-American. The Rating Outlook is Stable.
KEY RATING DRIVERS
The rating affirmation reflects the company's continued very strong
capitalization, relatively low risk liability profile, improved
operating performance, and conservative financial management. The
ratings also consider the competitive challenges facing Pan-American
when operating in the U.S. and competing with companies that have
significantly greater scale, market share, pricing power and
distribution capabilities. Pan-American's non-U.S. insurance operations
are concentrated in Latin American and Caribbean countries, the majority
of which have sovereign ratings that are lower than Pan-American's
Pan-American's very strong balance sheet continues to be a key ratings
driver. The company's risk-based capital was estimated at 534% at June
30, 2013, compared to 510% at year-end 2012. In January 2013,
Pan-American sold its ownership in a local hotel which had a positive
benefit on RBC. Operating leverage of about 5 times (x) compares
favorably to an industry average of 9x. Consolidated financial leverage
for the Pan-American Life Insurance Group, Inc. (PALIG) is moderate at
9% and the total financing and commitments (TFC) ratio of .10x is among
the lowest in Fitch's life insurance universe.
Fitch believes that Pan-American's earnings have become increasingly
stable and predictable as management has successfully streamlined
operations and addressed legacy issues. Fitch also notes that
Pan-American's target markets are making a larger contribution to
earnings, and the company is less reliant on its closed block of
ordinary life business in the U.S. The recent acquisition of select
Latin American and Caribbean businesses of MetLife, Inc. has allowed the
company to expand its footprint in the region. Fitch believes continued
success in the integration of this business will improve the mix of
Pan-American's revenues and earnings between its core segments.
Pan-American has little exposure to equity market volatility or
disintermediation riskgiven its liability structure, which is made up
primarily of life insurance and accident and health reserves. Operating
cash flow is good, and PALIC is a member of the Federal Home Loan Bank
of Dallas, which provides borrowing capacity of roughly $90 million,
none of which was utilized as of June 30, 2013.
Fitch does not anticipate an upgrade in the near-to-intermediate term.
Fitch views Pan-American as a solid niche player which under Fitch's
criteria has a market position, size and scale supportive of a 'BBB'
rated company. However, the company's very strong balance sheet
fundamentals provide Pan-American with an uplift in its rating to the
'A' category. Fitch does not expect a change in the balance of these key
rating attributes to occur over the ratings horizon.
The key rating triggers that could result in a downgrade include:
--A sustained drop in the company's U.S. RBC ratio below 400%;
--A significant increase in consolidated financial leverage to over 20%
or an increase in surplus notes as a percentage of total adjusted
capital to over 25%;
--Deterioration in financial results that includes GAAP earnings-based
interest coverage falling below 4x;
--Inability to successfully integrate MetLife, Inc. acquisition.
Fitch affirms the following ratings with a Stable Outlook:
Pan-American Life Insurance Company
Pan-American Assurance Company
--IFS at 'A'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (August 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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