A.M. Best Downgrades Ratings of Guaranty Income Life Insurance Company

Thursday, Aug 20,2009, 11:28:25 AM Click:

A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to "bb+" from "bbb-" of Guaranty Income Life Insurance Company (Guaranty Income) (Baton Rouge, LA). The outlook for both ratings is stable.

The rating downgrades recognize Guaranty Income's decline in its risk-adjusted capital position as measured by Best's Capital Adequacy Ratio (BCAR). The decline is primarily a result of market volatility and its impact on the company's asset base. Guaranty Income maintains a conservative investment philosophy consisting of higher quality fixed-income securities. However, the company recently experienced rating downgrades in its mortgage-backed security portfolio, which resulted in an increase in below investment grade holdings. As a result, Guaranty Income's risk-based capital ratio, as calculated by BCAR, materially weakened. In addition, given the uncertainty of the current investment climate, A.M. Best remains concerned over the potential for additional investment losses and further rating actions on Guaranty Income's investment grade and below investment grade fixed income portfolio, which could further weaken the company's risk-adjusted capital ratio.

As a positive offsetting factor, Guaranty Income's liquidity position is strong, characterized by significant holdings of cash and short-term securities. A.M. Best expects the company to draw down its short-term position and invest in high quality fixed assets over the next several months.

Guaranty Income's absolute level of capital has remained relatively stable in recent years following capital contributions, as the parent has sold several non-core subsidiaries and used the proceeds to retire debt and contribute capital to Guaranty Income. Additionally, the company has reported favorable individual annuity premium trends due to marketing initiatives and strengthening of its distribution channel. Moreover, better spreads have contributed to improved operating results during the past several years. A.M. Best will continue to monitor the current economic and investment climate and assess the impact on the company's risk-based capital ratio.