A.M. Best has downgraded the Financial Strength Rating (FSR) to C++ (Marginal) from B- (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b+” from “bb-” of Atlanta Life Insurance Company (Atlanta, GA). The outlook of the Long-Term ICR has been revised to negative from stable while the outlook of the FSR remains stable. ALIC is the life insurance member of Atlanta Life Financial Group, Inc..

The Credit Ratings (ratings) reflect ALIC’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management.

The rating downgrades reflect ALIC’s small level of absolute capital and qualitative concerns regarding a large note receivable from ALIC’s immediate holding company, ALFG, and interest rate risk embedded in its balance sheet. ALFG’s business model has been wound down due to operating losses from its asset management subsidiary, Herndon Capital Management, LLC, which ceased business operations in October 2017. ALFG is currently seeking regulatory approval to restructure a large note payable to ALIC, which represents a material percentage of ALIC’s surplus. Absent a recapitalization of ALFG from external parties, A.M. Best is concerned that ALFG’s diminished financial capacity could result in further de-capitalization of ALIC in the near term.

While year-end results were favorable relative to its business plan, ALIC’s operating results were negatively impacted from higher claims experience and an increase in operating expenses. Additionally, the investment portfolio is currently under transition, which could place additional pressure on operating results in the near term.

Finally, ALIC’s business profile is limited given its geographic concentration with the vast majority of premium concentrated in two states. ALIC has recently begun offering contestable period structured settlement and key man suicide coverage in order to diversify its book of business, which historically has been limited to assumption of group life reinsurance.