OLDWICK, NJ–(BUSINESS WIRE)–AM Best Affirmed Citizens Security Life Insurance Company (Citizens Security Life) (Louisville, KY) financial strength rating of B++ (good) and issuer long-term credit rating of “bbb” (good). The outlook for these Credit Ratings (ratings) is stable. Concurrently, AM Best withdrew these ratings as the company requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect Citizens Security Life’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal management of business risks.
The rating confirmation reflects Citizens Security Life’s highest level of risk-adjusted capitalization as measured by Best’s capital adequacy ratio (BCAR). This is partially offset by the company’s relatively low level of absolute capital and surplus, as profits are partially offset by regular and discretionary dividends paid to the parent company, Citizens Financial Corporation (CFC). AM Best believes that the high levels of equities and real estate in the investment portfolio expose the company to credit market investment risk, and the level of lower quality fixed income securities held exceeds the average carriers of accidents and health.
The organizational debt held by CFC has increased significantly in 2021, as has its consolidated net financial leverage ratio. AM Best believes this limits the organization’s overall financial flexibility and capital fungibility, and could lead to liquidity issues related to the expected timing of debt service. In addition, CFC’s balance sheet also shows a high and growing level of goodwill and intangible assets, the result (as with debt) of its strategy of business development through acquisitions. CFC’s consolidated tangible net equity turned negative in 2021 and resulted in a negative assessment and a slowdown in the financial strength and consolidated ratings of Citizens Security Life.
Citizens Security Life’s net premium growth over the past few years has been driven by new sales of individual dental products and other ancillary products and supported by CFC acquisitions, which have accordingly expanded marketing opportunities for supplementary health insurance from Citizens Security Life. The company has seen an increase in pre-tax underwriting gains and net operating gains every year for the past few years, with return on equity and revenue return measures outpacing other individual casualty rating units and healthcare with strong operational performance.
Citizens Security Life Markets select ancillary health products for a relatively small niche segment of the elderly population, where it primarily operates in a single market with its largest source of sales similar to a “captive” marketing model . Business is concentrated because dental products account for about two-thirds of net premiums and the majority of the company’s direct premiums come from five states. However, this concentration risk is somewhat offset by the fact that the company does not currently face significant competition in its specialized niche in the supplementary health insurance market.
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