A.M. Best Downgrades Ratings of Atlanta Life Insurance Company

A.M. Best Co. has downgraded the financial strength rating to C+ (Marginal) from B- (Fair) and issuer credit rating to “b-” from “bb-” of Atlanta life insurance Company.

The ratings have been removed from under review with negative implications and assigned a negative outlook. Atlanta Life is the life insurance member of Atlanta Life financial Group.

According to officials, the rating actions are a result of A.M. Best’s discussions with Atlanta Life’s management and its review of the company’s financial plans, which were developed in response to a consent order issued recently by the Georgia Commissioner of Insurance, designed primarily to remediate the company’s risk-based capital position. The consent order was issued by the Commissioner after earlier having placed Atlanta Life under Administrative Supervision. While under Administrative Supervision, Atlanta Life is permitted to conduct normal business operations; however, it must continue to adhere to the requirements of the consent order.

A.M. Best said that in 2009, Atlanta Life’s absolute capital and surplus levels dropped significantly–more than 30 percent from the previous year–accelerating further the declining trends in its capital and surplus levels that have taken place over the past several years. This decline in capital and surplus was triggered by an increase in non-admitted assets (a Georgia Commissioner of Insurance directive) related to pledged securities and operating balances associated with an affiliate–Jackson Securities (Jackson Securities)–and overall net operating losses primarily derived from Atlanta Life’s core assumed group life business. A.M. Best notes that loans to Jackson Securities continue to pay contractual interest, and all outstanding loan balances remain on schedule to be paid off in 2014.

The decline in absolute capital and surplus also has placed significant pressure on Atlanta Life’s already modest risk-adjusted capitalization as measured by both Best’s Capital Adequacy Ratio (BCAR) and state regulators. Additionally, the reduced level of capital and surplus has further diminished the company’s financial flexibility, which also remains encumbered by loans made to another affiliate–Herndon Capital Management. Additionally, A.M. Best notes that contractual interest continues to be paid on these loans, which are scheduled to be paid off in 2012.

The assigned negative outlook reflects A.M. Best’s belief that given Atlanta Life’s modest historical operating performance results, it will be challenged to reverse declining capital and surplus trends and aid risk-adjusted capitalization without a meaningful infusion of capital. In A.M. Best’s opinion, should the company’s regulatory risk-based capital ratio decline further, there would be a material risk that the Georgia Commissioner of Insurance could place the company under Regulatory Supervision. However, A.M. Best notes that Atlanta Life has sent a letter to the Georgia Commissioner requesting a hearing be held to rescind the Consent Order of Administrative Supervision.