AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” (Good) of Life Insurance Company of Alabama (LICOA) (Gadsden, AL). The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect LICOA’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The positive outlook on the Long-Term ICR is reflective of material improvements in LICOA’s ERM program in recent years. The organization engaged with an external consultant to help form a framework for its ERM program in 2019 and since has made additional enhancements to the program. LICOA maintains a detailed risk register, which identifies and ranks the organization’s risks based on severity. The ERM program includes well-defined controls and mitigation strategies for its top risks and the chief risk officer holds quarterly risk management meetings to discuss identified risks and mitigation strategies. Furthermore, LICOA has made strong enhancements to its cyber security in recent years. Due to the company’s relatively small size, management has sufficient visibility into the daily operations and inherent risks of LICOA.

While AM Best believes the ERM program itself is satisfactory for the organization’s operations, LICOA’s operating results have yet to reflect improvements in the program as capital and premiums have trended unfavorably over the last five years and return margins have narrowed. AM Best will be monitoring the company’s ability to exhibit its risk management program, especially as the organization expands business into Texas, and potentially, other states.

LICOA’s balance sheet strength assessment is very strong, evidenced by the organization’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). However, absolute capital and surplus has declined materially over the last five years, largely driven by Treasury stock repurchases and the company’s annual shareholder dividend payments. The decrease in capital has come despite consistent yet modest profitability over the same period. Net premiums written also have trended unfavorably over the past five years, although management has indicated that it expects the expansion of business into Texas in 2024 to have a significant positive impact on growth. LICOA’s business profile is assessed as limited due to its nominal share of the supplemental accident and health and life worksite market. The company specializes in serving small to midsize employer groups in the rural areas of the Southeastern United States, with a focus on cancer and life products. This exposes the company to concentration risk as approximately 80% of net premiums are derived from four Southeastern states.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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