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Insurance industry

S&P Lowers Rating of Franklin Life Insurance Co. on Capital Withdrawal

Strategic Insights

— 1 min read

S&P lowers its claims-paying ability rating of Franklin Life Insurance Co. to double-`A' from double-`A'-plus after the company withdraws about $500 million of capital to partially finance the acquisition by American General Corp. Franklin Life's strong competitive position, good capital position, and high-quality investment portfolio are offset by stagnant life insurance sales and slow earnings deterioration over the past several years.

Key Takeaways:

  • S&P lowered the claims-paying ability rating of Franklin Life Insurance Co. to double-`A' from double-`A'-plus due to the withdrawal of about $500 million of capital to partially finance the acquisition by American General Corp.
  • The rating action is a result of the excessive amount of capital that was used to finance the transaction, which was a significant factor in S&P's previous double-`A'-plus rating.
  • Franklin Life has a strong competitive position in the rural and suburban traditional life insurance market, but sales have been stagnant since 1992, and earnings from operations have experienced slow deterioration for several years.
  • The company's 3,500 person agency force is well-positioned to distribute products to Franklin's median-income, middle America customer base, and risk-adjusted capitalization benefits from the company's stable liability profile and sound asset quality.
  • Franklin has low exposure to high-yield bonds and problem mortgages, and S&P expects the same conservative balance sheet management as in the past.
  • Net operating earnings for 1989 were $90.1 million, but had fallen to $78.8 million (annualized) by the third quarter 1994.
  • S&P expects sales and earnings to grow moderately in 1996 and beyond, while 1995 will serve as a transition year for Franklin Life.

Statistics:

  • $500 million: Amount of capital withdrawn by Franklin Life to partially finance the acquisition by American General Corp.
  • 90.1 million: Net operating earnings for 1989
  • 78.8 million (annualized): Net operating earnings for the third quarter 1994
  • 3,500: Number of agents in Franklin Life's agency force
  • 1992: Year in which life insurance sales began to stagnate for Franklin Life

Sources:

  • S&P CreditWire, 2/7/95
  • Business Wire

Contact: Neil Strauss, ASA (212) 208-8344

Jack Reichman, ASA (212) 208-8432

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