Jan 24 (The following statement was released by the rating agency)
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 548% at Sept. 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 8% and the total financing and commitments (TFC) ratio of
.1x is among the lowest in Fitchâ€™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. Operating results thus far from the
recent acquisition of select Latin American and Caribbean businesses of MetLife,
Inc. have been strong and have 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-Americanâ€™s revenues and earnings between its core
Pan-American has little exposure to equity market volatility or
disintermediation risk given 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
Sept. 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 companyâ€™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'.