According to Fitch Ratings, the ratings for its midsize mutual life peer group continue to be supported by higher levels of capital relative to the broader life industry, reflecting the unique characteristics of mutual ownership.
The rating agency suggests that compared with stock companies, these mutual insurers generally have a longer-term focus on sustainable returns while maintaining excess capital, compared with target levels and rating expectations.
The financial performance among the peer group tends to be relatively muted when compared to the broader industry as a result of the companies’ elevated levels of capital, notes Fitch.
However, the rating agency weighs financial performance less heavily for this peer group, except Mutual of America, where financial performance carries a higher weight. Overall, financial performance is expected to improve in the current rising rate environment.
Fitch observes that the company profiles of the peer group are mainly in the strong to very strong categories, and are generally aligned with the rating levels and reflective of diversification across liabilities and strong market positions.
It notes that Western & Southern Financial’s improved company profile reflects its greater operating scale and diversification, driven primarily by the acquisition of Gerber Life.
Meanwhile, low-interest rates in recent years pressured companies within this group and the broader industry, leading to an increased focus on protection and other capital-light businesses, says Fitch.
The affected product lines include variable annuities with guaranteed living benefits and guaranteed universal life insurance.
Financial leverage within this peer group is generally lower than the broader industry, despite a number of companies taking advantage of favourable capital markets in recent years to issue senior unsecured or surplus notes.
The insurers in This Peer Group are, Minnesota Life Insurance Co., Western & Southern Financial Group, Inc., Pacific LifeCorp., The Penn Mutual Life Insurance Company, and Mutual of America Life Insurance Company.
