A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Sentinel Security Life Insurance Company (Sentinel Security Life) (Salt Lake City, UT) (OTCBB: SENI). The outlook for both ratings is stable.
The rating actions acknowledge Sentinel Security Life’s favorable risk-adjusted capitalization, despite its recently declining total absolute capital and surplus triggered primarily by investment losses. The rating actions also recognize the company’s profitable—although modest—operating performance that is derived principally from its core ordinary life segment. This segment has shown positive net premium growth trends over the past several years enhanced by a well-established personal producing agent distribution network that markets Sentinel Security Life’s final expense life insurance products.
Partially offsetting these positive factors are the company’s narrow and concentrated business profile. In order to broaden its business profile, Sentinel Security Life continues to expand geographically and has begun marketing Medicare Supplement and Medicare Select products primarily through a supervising general agent agreement. A.M. Best believes the company may be challenged to sustain and improve its operating performance, as well as meaningfully grow its absolute capital and surplus going forward. In response, Sentinel Security Life has initiated a controlled business growth strategy and plans to utilize reinsurance to reduce the expense strains expected from its new business growth initiatives.
Sentinel Security Life maintains an elevated exposure to stocks—preferred and common —and to a lesser extent, below investment grade bonds relative to its total capital and surplus. Sentinel Security Life’s preferred stocks are concentrated in the financial sector, which could expose the company to additional investment losses as this sector has been slow to recover. A.M. Best notes that the company has been opportunistically reducing its exposure to common equities. Nonetheless, the equity investments expose the company to potential realized and unrealized losses in times of high market volatility. However, these concerns are partially mitigated by Sentinel Security Life’s current favorable risk-adjusted capitalization.