Major Annuity Carrier Gets Downgraded

A.M. Best Company, a leading ratings agency in the insurance and annuity marketplace, announced this week that it has downgraded its ratings for The Phoenix Companies, Inc. and its subsidiaries.  Not only did A.M. Best Company downgrade Phoenix on its financial strength rating, but it also lowered the rating for its issuer credit ratings.  Headquartered in Hartford, CT, The Phoenix Companies, Inc. and its subsidiaries consist of Phoenix Life Insurance Company, Phoenix Life and Annuity Company, PHL Variable Insurance Company, and American Phoenix Life and Reassurance Company.  Prior to this week’s downgrade, A.M. Best Company had Phoenix’s financial strength rating at B+ (Good).  The downgrade now puts The Phoenix Companies, Inc. financial strength rating at a worrisome B (Fair) with a stable outlook.  At the same time, A.M. Best Company has downgraded their issuer credit rating to a “bb+” from a “bbb-“  with a negative outlook.

In their statement issued on August 28th, 2013, A.M. Best cited several reasons for the downgrade.  Most notably was a recent announcement by Phoenix regarding its second quarter 2013 statutory results and a growing concern of material and adverse adjustments that will be made when Phoenix files its audited GAAP (Generally Accepted Accounting Principles) and statutory statements.  Another factor that A.M. Best considered was the fact that The Phoenix Companies, Inc. and its operating subsidiaries have reported a substantial decline in capital and surplus in 2013.  This is after both capital and surplus steadily increased through 2012.  A.M. Best Company also points out the acknowledgement by Phoenix that they have identified weaknesses in their accounting controls and risk management process.

While the downgrade of Phoenix and its subsidiaries by A.M. Best Company is troublesome to say the least, I wouldn’t count Phoenix out yet.  First of all, they are well established and have been around since 1851.  Secondly, they continue to have a competitive product line, specifically in the fixed index annuity space.  Their products fill a niche where clients want to take income immediately or very soon, often times providing some of the highest guaranteed income for life for clients.  They also have a product that provides income, a growing death benefit, and long-term care or chronic care benefits.  Finally, A.M. Best admits in its report that their ratings could be raised back to where they were before the downgrade if upon filing the updated GAAP, errors previously identified as being material and adverse are deemed not to be.  Let’s hope this downgrade of Phoenix is a temporary hiccup and not a sign of even deeper problems with the company.

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