Ratings agency A.M. Best has affirmed the “B” (Fair) financial strength rating and “bb+” long-term issuer credit rating of
Pinnacle Life Limited. The outlook for these credit ratings is stable.
According to A.M. Best, the ratings reflect the firm’s balance sheet strength, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
“Pinnacle Life’s balance sheet strength assessment mainly reflects its large intangible assets (predominantly insurance contract assets), high reinsurance leverage and modest regulatory capital position,” it said. “In addition, A.M. Best expects the company’s in-force portfolio to remain consistently profitable, based on a product portfolio that is expected to deliver high underlying margins.
“The claims experience and expense ratio have each improved in recent years. Although overall earnings have exhibited moderate volatility, this was driven mainly by discount rate movements.”
Pinnacle Life is a small-sized life insurer, with a market share of less than 1% based on in-force premiums and new business premiums. It has a low product risk profile, with a majority of its in-force premium related to mortality risk; the remainder is mostly funeral policies and trauma cover. While the marketing of new business is done primarily through Pinnacle Life’s website and digital advertising, capital constraints continue to challenge the company’s ability to increase profitable market share.
A.M Best said Pinnacle Life has a developed risk management program based on the company’s current size and complexity; has demonstrated an overall adequate ability to address most of its risks, primarily through adequate pricing, holding highly liquid assets in its investment portfolio and partnering with a highly rated reinsurer to reduce its claims volatility; and has risk management capabilities aligned appropriately with its risk profile.
Positive rating actions may occur if there is a substantial improvement in the firm’s solvency capital and financial flexibility. Negative rating actions may occur if there are large impairments in net insurance contract assets due to higher-than-expected lapses for its in-force business. Additionally, downward rating pressure could occur if the company’s solvency margin deteriorates significantly due to higher-than-budgeted operating expenses or greater-than-assumed claims, the agency added.
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