|[August 26, 2014]
Fitch Assigns 'AA+' IFS to Guardian Life Subsidiary, Berkshire Life; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings assigns an 'AA+' Insurer Financial Strength (IFS) rating
to Berkshire Life Insurance Company of America, (BLICA), a wholly owned
subsidiary of The Guardian Life Insurance Company of America (Guardian).
Existing ratings assigned to Guardian and its affiliates are unaffected
by this issuance. The Rating Outlook is Stable.
KEY RATING DRIVERS
Fitch has extended Guardian's group IFS rating of 'AA+' to its operating
subsidiary, BLICA, based upon its 'Core' status due to the strategic fit
and Guardian's strong ability and track record of supporting subsidiary
Fitch views BLICA as 'Core' due its strategic fit for Guardian with
regards to diversification of product revenues and profitability and
Guardian's ability and track record of supporting subsidiary operations.
BLICA's primary business is sale and administration of Guardian's
disability income. BLICA writes new individual disability income (DI)
products through Guardian's career agency system and group offices.
Individual disability insurance is considered a core part of Guardian's
product offerings, complementing its large par whole life and group life
product lines. Individual Disability premium accounts for 6.5% of total
Guardian premium in 2013 and 5% of Guardian's earnings. BLICA and
Guardian entered into a new reinsurance agreement in 2013 where Guardian
assumed 80% of BLICA's net individual disability business on a funds
Guardian is expected to maintain BLICA's risk based capital at
approximately 350% going forward, following a pending capital transfer
to parent, Guardian, following the 2013 reinsurance agreement.
BLICA is a wholly owned stock subsidiary of Guardian and licensed in all
50 states. BLICA reported total assets of $3.6 billion and total
adjusted capital of $624 million at June 30, 2014.
Guardian's very strong 'AA+' Insurer Financial Strength ratings continue
to reflect exceptionally strong balance sheet fundamentals, stable
operating results, and a favorable operating profile. The Stable Outlook
is driven by Fitch's expectations of continued sustainable solid
operating and investment performance for 2014, supported by conservative
product and distribution profiles. Fitch believes that the pressure on
profitability and capital driven by an extended low interest rate
scenario and future investment losses is manageable in the context of
the company's capital position and liability profile.
Guardian's very strong balance sheet fundamentals include extreely
strong risk-based capitalization, low leverage, and a stable liability
profile. The extremely strong capitalization and quality of capital are
key factors supporting the rating. Fitch estimates Guardian's risk-based
capital (RBC) ratio to be above 525% at June 30, 2014. Total adjusted
capital (TAC) increased 13% to $6.8 billion at June 30, 2014 from $6.1
billion at year-end 2013 due in part to the issuance of $450 million in
fifty year surplus notes in June 2014. Financial leverage (surplus notes
in relation to TAC) increased to approximately 14% from 7% as of Dec.
31, 2013. The total financing and commitments (TFC) ratio remains very
low at 0.1x.
Guardian's recent operating performance has remained relatively stable
and in line with rating expectations. Reported statutory operating
return (after taxes and policyholder dividends) on TAC is in the 4% to
7% range, consistent with peer mutual companies and reasonable given the
company's mix of business. Guardian also has significant flexibility to
adjust policyholder dividends should experience warrant.
As a core member of The Guardian Life Insurance Company of America,
BLICA shares the same rating sensitivities as the group as a whole.
Key drivers that could result in a downgrade include:
--A significant decline in TAC or an RBC ratio below 400%;
--Statutory financial leverage above 15%;
--GAAP interest coverage below 7x;
--A deterioration in disability claims experience causing a significant
operating or capital loss;
--And/or regulatory or tax law changes that hurt the company's position
in its primary whole life market.
Given that Guardian already has a rating in the second-highest category,
Fitch does not anticipate an upgrade at this time.
Fitch assigns the following rating with a Stable Outook:
Berkshire Life Insurance Company of America
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Nov. 13, 2013.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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