A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). Gerber Life was acquired in August 2007 by Nestlé SA (Nestlé) (Switzerland) [Swiss: NESN] from Novartis. Nestlé is a food and beverage conglomerate with operations in almost every country around the world.
In revising the outlook to negative, A.M. Best notes the deteriorating levels of statutory profitability within Gerber Life’s ordinary life line, a decline in risk-based capital resulting from substantial realized losses in its investment portfolio and a modest decline in new business sales during the second half of 2008. While Gerber Life continues to maintain a solid level of risk-based capital despite the 2008 decline, the company continues to maintain a sizeable unrealized loss position on its remaining investments. A.M. Best notes that the company has some exposure to structured securities, including residential and commercial mortgage-backed securities and other asset-backed securities. Although the majority of these securities are in the higher-rated tranches, A.M. Best believes that some of these securitized investments, especially within the commercial mortgage-backed sector, could be at risk of impairment over the near term.
The affirmation of Gerber Life’s ratings primarily reflects its solid level of risk-adjusted capitalization, good earnings diversity through is two primary uncorrelated lines of business and the favorable overall premium growth trends in its ordinary life product line. Utilizing the Gerber Products (Gerber) company logo, Gerber Life enjoys good brand recognition within the market place, which has benefited the company as it continues to focus on the juvenile life insurance market through its direct-to-consumer marketing strategy. As a result, the company has experienced favorable trends in premium production over the past five-year period in its core ordinary life line of business.
However, A.M. Best notes that new business sales declined modestly during the second half of 2008. A.M. Best believes that the company may be challenged to increase new sales in the near term due to the recessionary economic environment. In addition, operating profitability has declined substantially over the past five-year period due to increased marketing and acquisition costs, as well as other one-time costs associated with its divestiture from Novartis. While favorable operating results continue to be generated from Gerber Life’s group accident and health line business, A.M. Best will be monitoring the company’s ability to increase top-line growth while improving operating profitability in its core ordinary life product line going forward.
In revising the outlook to negative, A.M. Best notes the deteriorating levels of statutory profitability within Gerber Life’s ordinary life line, a decline in risk-based capital resulting from substantial realized losses in its investment portfolio and a modest decline in new business sales during the second half of 2008. While Gerber Life continues to maintain a solid level of risk-based capital despite the 2008 decline, the company continues to maintain a sizeable unrealized loss position on its remaining investments. A.M. Best notes that the company has some exposure to structured securities, including residential and commercial mortgage-backed securities and other asset-backed securities. Although the majority of these securities are in the higher-rated tranches, A.M. Best believes that some of these securitized investments, especially within the commercial mortgage-backed sector, could be at risk of impairment over the near term.
The affirmation of Gerber Life’s ratings primarily reflects its solid level of risk-adjusted capitalization, good earnings diversity through is two primary uncorrelated lines of business and the favorable overall premium growth trends in its ordinary life product line. Utilizing the Gerber Products (Gerber) company logo, Gerber Life enjoys good brand recognition within the market place, which has benefited the company as it continues to focus on the juvenile life insurance market through its direct-to-consumer marketing strategy. As a result, the company has experienced favorable trends in premium production over the past five-year period in its core ordinary life line of business.
However, A.M. Best notes that new business sales declined modestly during the second half of 2008. A.M. Best believes that the company may be challenged to increase new sales in the near term due to the recessionary economic environment. In addition, operating profitability has declined substantially over the past five-year period due to increased marketing and acquisition costs, as well as other one-time costs associated with its divestiture from Novartis. While favorable operating results continue to be generated from Gerber Life’s group accident and health line business, A.M. Best will be monitoring the company’s ability to increase top-line growth while improving operating profitability in its core ordinary life product line going forward.
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