The ratings of FBTC are based upon the company’s supportive and improved risk-adjusted capitalization, stable reserve development and sound balance sheet liquidity with generally positive operating cash flows. In addition, the ratings and outlook recognize the company’s favorable operating performance over the past couple of years, its supportive business profile and actions taken by management to improve earnings. Partially offsetting these rating strengths are FBTC’s single state concentration of risk and underwriting losses in three of the past five years, particularly in 2011, when significant losses led to a loss of surplus and weakened capitalization. Since then, underwriting performance has improved due to rate increases, underwriting initiatives and fewer severe storm losses.
The ratings of FBTC would be further stabilized by a continued favorable earnings trend that leads to capital appreciation without excessive growth. Negative rating action may occur should risk-adjusted capitalization be significantly weakened or if a negative trend in operating performance develops.
The affirmation of the rating of FBLIC reflects the company’s continued strong risk-adjusted capital position, new business growth in its core ordinary life line and modest exposure to interest sensitive annuity business. A.M. Best notes that in recent years, FBLIC has increased its investment allocation to less conservative asset classes such as common stock and joint ventures to maintain portfolio yield in the current low interest rate environment.
A.M. Best believes positive rating actions are unlikely for FBLIC. Factors that could place downward pressure on its ratings are erosion of capital and surplus due to realized and unrealized losses, weakening earnings trends or spread compression from its annuity block of business.