STANDARD SECURITY LIFE INSURANCE COMPANY OF NEW YORK
New York, New York
A-Effective: December 2, 2014
Ultimate Parent:
Geneve Holdings, Inc.
STANDARD SECURITY LIFE
INSURANCE COMPANY OF NEW YORK
485 Madison Avenue, 14th Floor New York, NY 10022-5872
Web: www.sslicny.com
Tel: 212-355-4141 Fax: 212-754-3346
AMB#: 007075 NAIC#: 69078
Ultimate Parent#: 055438 FEIN#: 13-5679267 BEST’S CREDIT RATING
Best’s Financial Strength Rating: A- Outlook: Stable Best’s Financial Size Category: VIII
RATING RATIONALE
Rating Rationale: The rating of the Independence Holding Company (IHC) organization has been extended to Standard Security Life Insur-ance Company of New York (Standard Security), which refl ects the strength it receives as part of the company. Standard Security continues reporting consistent operating earnings while maintaining a more than adequate risk-adjusted capital position. A.M. Best notes that Standard Security continues to emphasize the growth of its medical stop-loss and fully insured products. This growth is an important part of IHC’s busi-ness strategy.
The following text is derived from A.M. Best’s Credit Report on Inde-pendence Holding Company Group (AMB# 069756).
The rating of the core operating affi liates of Independence Holding Company Group (IHC Group) refl ects the group’s consistently posi-tive earnings, focus on profi table segments premium growth and its more-than-adequate combined risk-adjusted capitalization. Partially offsetting these positive rating factors are recent earnings decline and the challenge to maintain an appropriate level of risk-adjusted capital-ization given the impact of new business expense strain and the ongo-ing payment of stockholder dividends to service the holdongo-ing company debt. Additionally, A.M. Best remains cautious regarding the lower yields and the potential future performance of IHC Group’s invest-ment portfolio, given the persistent low interest rate environinvest-ment. IHC Group has been able to generate profi table operating earnings across its operations. While the group’s medical stop-loss and fully insured medical lines of business account for the majority of statu-tory earnings, ordinary and group life products as well as ancillary health products also contribute materially to the group’s earnings. A.M. Best notes that medical stop-loss earnings have benefi ted in recent years from improved loss ratios following initiatives taken to improve the performance of the block. Furthermore, as part of its strategic plan, IHC Group moved away from major medical, both in-dividual and small group, to fully insured ancillary medical offerings. New products include limited medical, short-term medical, critical illness and international benefi ts written by Madison National Life Insurance Company, Inc. (Madison National), and Independence American Insurance Company (Independence American), along with non-subscriber occupational accident and pet insurance written by In-dependence American. While these new insurance products are not expected to replace their major medical premiums over the near term, IHC Group remains focused on underwriting and pricing discipline
BUSINESS PROFILE
The following text is derived from A.M. Best’s Credit Report on Independence Holding Company Group (AMB# 069756).
Independence Holding Company (IHC), a Delaware corporation, is a publicly traded insurance holding company for a group of insur-ance companies operating throughout the United States trading on the NYSE under the symbol IHC. The company markets life and health insurance business directly through its insurance subsidiaries and marketing affi liates, and through independent managing general un-derwriters (MGUs), brokers and agents.
The Independence Holding Company Group (IHC Group), which consists of Standard Security Life Insurance Company of New York (Standard Security), Madison National Life Insurance Company, Inc. (Madison National) and Independence American Insurance Com-pany (Independence American), sells individual and group life, fi nal expense, medical stop-loss and group long-term disability and New York short-term disability (DBL). The group also markets a variety of health insurance products including dental, vision, supplemental gap, limited and short-term medical, and most recently, pet insurance, international health and non-subscriber accidental insurance. Scope of Operations: The IHC Group is comprised of three insurance subsidiaries that market insurance products. Standard Security, the lead company within the group, markets medical stop-loss, short-term medi-cal, limited medimedi-cal, DBL, life, dental and vision products. Over the last two years, the company renewed its focus on profi table growth of the stop-loss segment and posted a substantial revenue growth in that prod-uct that is expected to continue. Standard Security also has a sizeable share in the DBL market that was further enhanced following assump-tion of premium from a competitor that exited the market in 2013. The company used to market major medical, but made a decision to exit/de-emphasize this product following ACA implementation. The company had sold deferred fi xed annuities prior to 2012, but has since sold off the majority of that line of business. Standard Security is domiciled in New York and is licensed in all 50 states, the District of Columbia, the Vir-gin Islands, and Puerto Rico. In an effort to simplify the organizational structure within IHC Group, Madison National dividended 100% of its common stock in Standard Security to its parent, Independence Capital Corporation, effective September 30, 2011. As a result of the transac-tion, Standard Security became a sister company to Madison National. Madison National is domiciled in Wisconsin and is licensed to sell insurance products in 49 states, the District of Columbia, American Samoa, Guam, and the Virgin Islands. Historically, the company’s core operations have involved acquiring life and annuity blocks of policies from other insurance companies and state insurance guaranty associations under assumption reinsurance and coinsurance agree-ments. Madison National also offers group term life and disability, individual life and annuities, fully insured health products and a mini-mal amount of medical stop-loss. The company has initiated direct marketing of ordinary life policies through distribution sources avail-able from some of its acquisitions and its wholly owned marketing organization, IHC Financial Group, Inc. Most of its ordinary life in-force business has been acquired.
and measured profi table growth. IHC Group’s consolidated risk-ad-justed capital position, as measured by Best’s Capital Adequacy Ratio (BCAR), has been more than adequate for the rating of its members for the last fi ve years and has been aided by the group’s trend of profi table earnings.
IHC Group’s underwriting earnings declined during 2013 driven pri-marily by a higher loss ratio in the major medical line of business, as the utilization increased in advance of the implementation of The Patient Protection and Affordable Care Act (ACA). In addition, investment in-come was lower following the reduction in invested assets related to a reinsurance transaction of annuity block of business. While underwrit-ing results improved substantially durunderwrit-ing the fi rst nine months of 2014 as IHC Group discontinued the majority of major medical policies and realized substantial improvement in loss ratios, the investment income experienced further decline, primarily as a result of a lower interest rate environment. Lower earnings combined with premium growth, as well as the payment of stockholder dividends, resulted in lower risk-adjusted capitalization at Standard Security Life Insurance Company of New York (Standard Security) and Independence American in 2013. Although the capitalization remains above the minimum guidelines for the rating, A.M. Best is concerned that given the growth of stop-loss premium, additional deterioration of risk-adjusted capital remains pos-sible. A.M. Best will monitor the impact of new business strain and how the group will utilize its capital going forward. Historically, IHC Group had used excess capital for acquisitions, dividends and share repurchases. In addition, A.M. Best remains cautious regarding the prolonged low interest rate environment and the impact it has had on IHC Group’s earnings and investment portfolio performance. Similar to other life and annuity companies, the extended period of low interest rates continues to have an adverse impact on the company’s net in-vestment yields. In addition to the reduction in net inin-vestment income, net income could also be adversely impacted by future realized losses, although unrealized losses have all but disappeared in 2014. A.M. Best notes that the IHC Group’s investment portfolio is actively managed, and the organization has been active in decreasing its holdings in riskier assets in recent years.
Positive rating movements for the members of IHC Group are un-likely in the near to medium term. Factors that could lead to negative rating actions include deterioration of risk-adjusted capital within the insurance subsidiaries, a prolonged period of declining net premium within the organization’s core lines of business or signifi cant changes in the profi tability of the group.
KEY FINANCIAL INDICATORS ($000)
Total Capital
Capital Asset Net Net
Surplus Valuation Premiums Invest Net Year Assets Funds Reserve Written Income Income 2009 370,831 115,055 474 180,198 13,291 8,783 2010 363,526 109,264 121 141,313 12,182 3,267 2011 371,622 106,481 1,044 151,642 12,043 7,709 2012 239,504 116,282 902 148,362 8,104 15,805 2013 249,503 113,972 1,476 214,413 6,639 9,180 (*) Data refl ected within all tables of this report has been compiled from the company-fi led statutory statement.
during the fourth quarter of 2013, taking on more risk within its major medical products as the result of terminating its reinsurance agree-ment with a third party company, and obtaining a sizeable portion of New York disability renewals from a carrier that has exited the marketplace. For a full year 2014, it is anticipated that premium will experience about 5% decline primarily driven by an almost 50% drop in major medical premium following the exit from that line of busi-ness. Lower major medical revenue is partially offset by growth of stop-loss and expansion of multiple ancillary medical products. The decline of major medical revenue is expected to continue to affect the company in 2015, as overall fully-insured premium is expected to decrease. In addition, A.M. Best notes IHC Group’s increased pre-mium concentration within stop-loss segment. However, the company is well positioned to grow its ancillary medical products and further diversify its premium revenue in the medium term.
OPERATING PERFORMANCE
The following text is derived from A.M. Best’s Credit Report on Independence Holding Company Group (AMB# 069756).
Operating Results: The IHC Group has diverse sources of revenue that have produced positive earnings on both a statutory and GAAP ba-sis. Virtually all major lines of business, including medical stop-loss, fully insured group medical insurance, and ordinary life, have con-tributed to the group’s profi tability in recent years. The earnings in the group health lines of business have been relatively consistent due to initiatives taken to improve the medical stop-loss. The ordinary life business segment within Madison National has also been producing profi table, yet fl uctuating, earnings due to the strength of its govern-ment seggovern-ment.
Although profi table, statutory earnings within the IHC Group de-clined in 2013 primarily due to higher loss ratios in Standard Se-curity’s medical stop-loss and fully insured lines of business and a decrease in net investment income. Results in the major medical seg-ment were affected, similar to other carriers, by increased utilization in advance of ACA implementation. This was partially offset by high-er premium within the company’s medical stop-loss, short thigh-erm medi-cal and disability lines of business. Additionally, Standard Security had a one-time interest maintenance reserve (IMR) release that con-tributed to higher earnings in 2012. Underwriting results at Standard Security improved substantially during the fi rst nine months of 2014 compared to the same period in 2013, as the major medical loss ratio moderated and profi tability of stop-loss and ancillary medical lines continued to improve. Going forward, A.M. Best expects Standard Security to maintain underwriting and pricing discipline and increase premium revenue in its profi table lines of business.
Madison National, which produced roughly one-half of IHC Group’s statutory earnings in 2013, reported substantially lower operating and net earnings during the fi rst nine months of 2014 compared to the same period in 2013. The results were primarily affected by lower investment income that, in addition to lower net yield, resulted from over $200 million decrease in invested assets following Madison National’s annuity reinsurance transactions completed during 2013. Over the past several years, premium volume and reserves have been
affected by the volume of reinsurance and acquisition activity conduct-ed. The acquisition of blocks of business through assumption reinsur-ance has mainly concentrated on ordinary life and annuity contracts. Acquisition activity has been minimal since 2008 as the company con-tinues to grow organically and add to its capital and surplus. In recent years, Madison National’s business profi le has changed considerably. Its medical stop-loss, which was once a core product for the company, is now primarily written by Standard Security. In addition, during 2013, the company entered into a coinsurance agreement with an unaffi liated reinsurer for the majority of its annuity block of business. Furthermore, similar to Standard Security, Madison National has exited/de-empha-sized the major medial product following ACA implementation. Today Madison National emphasizes the marketing of its ordinary life, group life, and fully insured health products, including dental, vision, and in-ternational disability through its acquired distribution channels. Independence American is owned by American Independence Corp. (AMIC), a publicly traded company trading on NASDAQ under the ticker symbol AMIC. The company is domiciled in Delaware and is currently licensed in 50 states and the District of Columbia. In 2011, Madison Investors Corporation, a subsidiary of Madison National, took over majority ownership of AMIC. Madison Investors Corporation, to-gether with IHC, owns approximately 90% of AMIC.
Historically, Independence American has generated most of its pre-mium income as a reinsurer (over 20%) of employer medical stop-loss business produced by Standard Security and the modest amount Madi-son National continues to write. In addition to this reinsurance premi-um, Independence American now focuses on selling various ancillary medical products, pet insurance, non-subscriber occupational accident insurance and medical stop-loss on its paper.
Territory: The company is licensed in the District of Columbia, Puerto Rico, U.S. Virgin Islands and all states.
Business Trends: Over the last fi ve years, IHC Group has experienced premium fl uctuations. Prior to 2012, IHC Group net premiums had been declining as the organization executed its strategic business plan to eliminate certain non-core lines of business and under-performing distributors, in addition to consolidating affi liated MGUs to improve effi ciencies within the organization. As a result, net premiums earned within its core stop-loss and fully insured health segments declined con-siderably in 2010 and 2011. Additionally, IHC Group’s individual life and annuity segment has also seen a reduction in premium due to the continuing low interest rate environment and a decrease in production sources. In 2012, net premiums started to increase, especially within the medical stop-loss segment, and gaining more traction on newer prod-ucts including pet insurance and non-subscriber occupational accident insurance. The growth in these lines of business were partially offset by Standard Security transferring most of its group annuity contracts to a non-affi liated carrier during the fi rst quarter of the year.
The increasing premium trends from 2012 continued in 2013. While medical stop-loss and newer lines of business continue to grow, IHC Group’s core group major medical and New York disability has also reported a signifi cant increase in net premium for the year. Howev-er, A.M. Best notes that there are several one-time events that have boosted the organization’s net premiums in those lines of business. This includes processing some of the 2014 renewals within major medical
2012, the company’s capital and surplus increased over 9% primarily due to the signifi cant increase in statutory earnings and a favorable re-serve adjustment. Standard Security has reported lower capitalization in 2013, as lower operating earnings and unfavorable changes within its net unrealized gain position were more than offset by the $8 million dividend paid out during the year. Furthermore, due to a combination of lower capital and surplus and sharp increase in net premium during 2013, the level of risk-adjusted capitalization dropped by almost 100 points. However, the level of capitalization remains adequate to sup-port company’s liabilities.
In addition, A.M. Best expects capitalization to improve in 2014, as the level of premium moderates while capital and surplus grows. Like Madison National and Standard Security, Independence Ameri-can is adequately capitalized in support of its insurance and invest-ment risks. The company’s capital and surplus has increased over 30% since 2009, including six percent growth in 2013 due to con-sistent net income and no dividends being paid during the year. A.M. Best expects Independence American to continue to grow its capital and surplus as the company’s newer products, including pet insurance and non-subscriber occupational accident insurance lines of business, gain more traction.
The following text is derived from A.M. Best’s Credit Report on Independence Holding Company Group (AMB# 069756).
Liquidity: IHC Group maintains an adequate level of liquidity, based on A.M. Best’s methodology for liquidity, due to the majority of its holdings in publicly-traded securities in addition to its material amount of cash and short-term investments. Despite the fl uctuating percentage of cash and short-term investments, the liquidity position within the group has remained relatively unchanged in recent years. A.M. Best believes IHC Group’s liquidity position is appropriate for the nature of its liabilities.
The following text is derived from A.M. Best’s Credit Report on Independence Holding Company Group (AMB# 069756).
Investments: IHC Group’s insurance subsidiaries investment port-folios are managed by the chief investment offi cer within IHC. The overall investment objective is to construct a conservative, diversifi ed portfolio of multiple asset classes designed to match IHC Group’s li-ability durations and cash fl ow requirements while maintaining a pre-dominately investment-grade, diversifi ed fi xed income portfolio, with a high degree of liquidity.
In an effort to improve liquidity and the overall quality of its invest-ments, the group shortened the duration of its investment portfolio by moving new money away from municipal backed credit and into agency-backed municipal mortgage bonds, U.S. government backed bonds and municipals backed by corporate credits. Furthermore, IHC Group generated higher yields, despite the continuing low interest rate environment, as the group moved away from lower-yielding mu-nicipals and into high-yield corporate bonds. The result of this change in investment strategy was an improvement in the group’s liquidity while maintaining favorable yields. However, the group’s net invest-ment income has remained depressed in recent years due to lower Furthermore, 2013 operating earnings benefi ted from reserve release
and lower income taxes attributable to the treatment of the reinsurance transaction.
Independence American reported stable results in 2013 and stronger earnings during the fi rst nine months of 2014 driven primarily by high-er undhigh-erwriting income resulted from growing revenue and improved loss ratios. Premium growth was attributable to pet insurance, medical stop-loss and other health and disability lines of business.
Prior to 2013, IHC Group reported a signifi cant increase in statu-tory net operating earnings in 2011 and again in 2012 primarily due to its medical stop-loss line of business. Improved loss ratios within the group’s medical stop-loss business, primarily due to lower claims, lower utilization and less exposure to larger groups, has led to greater underwriting profi tability compared to prior years. A.M. Best notes that the increase in IHC Group’s medical stop-loss earnings could also be attributable to the cancellation of most of its non-owned, under-performing, managing general underwriters compared to prior years, resulting in improved underwriting performance. Furthermore, A.M. Best notes that the group’s other core lines of business, including in-dividual and group life and annuities products, have also contributed favorably to IHC Group’s earnings in recent years.
BALANCE SHEET STRENGTH
The following text is derived from A.M. Best’s Credit Report on Inde-pendence Holding Company Group (AMB# 069756).
Capitalization: IHC Group maintains an appropriate capital position relative to its insurance and investment risks. The relative consistency of operating earnings within its diversifi ed businesses has offset an-nual dividends paid to the ultimate holding company over the years. As a result, capital and surplus has grown considerably during that time. However, A.M. Best notes that while capital growth has outpaced premium growth over the last fi ve years, during 2013, 35% growth of net premium written was supported by only 2% of capital and surplus expansion. As such, the level of risk-adjusted capitalization declined; however, it remains more than adequate for the rating level. Further-more, 2014 risk-adjusted capitalization may improve slightly, as full year premiums are expected to post approximately 5% decrease, while capital and surplus is projected to grow by about 3%.
Like the IHC Group, Madison National has been able to increase statutory surplus over the last three years primarily due to two coinsur-ance agreements on existing blocks of ordinary annuity business. In 2011, Madison National’s capital and surplus decreased substantially as its former subsidiary, Standard Security, was distributed to the hold-ing company. Since 2011, the growth of capital and surplus at Madison National was supported by consistent statutory net income and favor-able changes within its net unrealized gain position. This was partially offset by about $7.5 million in dividends being paid out of the company during 2012 and 2013. Due to the growth in capital and surplus, as well as changed product mix in recent years, Madison National maintains more than adequate level of capitalization to support its liabilities. As a result of the sizable dividends Standard Security paid to a parent over the years, its capital and surplus has remained relatively fl at. In
portfolio yields and the signifi cant decrease in invested assets that were attributable to the transfer of the majority of Standard Security’s and Madison National’s annuity reserves in 2012 and 2013. With virtually all of IHC Group’s longer-term annuity liabilities being moved off of its books, A.M. Best expects the duration of IHC Group’s fi xed ma-turity portfolio will be gradually modifi ed to refl ect the changes to its shorter-term liability structure.
In 2013, IHC Group’s investment portfolio was comprised of the fol-lowing: approximately three-quarters in fi xed maturity securities, virtu-ally all being of investment grade quality, and over ten percent invested in equities. A.M. Best notes that most of the equity holdings are within affi liated companies within the group. The remainder of IHC Group’s invested assets is allocated to cash and short-term securities, policy loans, alternative investments and other invested assets, with only cash and short-term securities exceeding 4% of the group’s total investment portfolio.
The subsidiaries within the IHC Group follow the same investment objectives as their ultimate parent, IHC. However, due to the various products each company markets, the composition of their individual investment portfolio will be slightly different to match its liability ob-ligations. Independence American invests in high-quality bonds which represent over 85% of the company’s invested assets. Equities, cash and short-term investments comprise almost all of the remaining in-vested assets within the investment portfolios of Independence Ameri-can. Madison National’s and Standard Security’s investment portfolio allocations are similar to Independence American since it markets simi-lar products. However, both companies have a much simi-larger allocation to common stocks due to their ownership in other subsidiaries within IHC. Preferred and common stock make up over one-tenth of both Madison National’s and Standard Security’s invested assets. As a result of their higher equity holdings, investment grade bonds comprise 80% of both companies fi xed maturity holding. The remainders of the investment portfolios for both companies are comprised of policy loans, cash and short-term investments in addition to Schedule BA assets. Madison Na-tional, with its longer life insurance liabilities, has average bond matu-rity of almost fourteen years while the average bond matumatu-rity for both Independence American and Standard Security, because of its shorter duration liabilities, is slightly less.
MANAGEMENT
Offi cers: Chairman and Chief Executive Offi cer, Roy T. K. Thung; Vice Chairperson, Rachel Lipari; President, David T. Kettig; Executive Vice President and Chief Financial Offi cer, Gary J. Balzofi ore; Senior Vice President and Chief Underwriting Offi cer, Michael A. Kemp; Vice President and Secretary, Loan Nisser; Vice President and Controller, David B. Getz; Vice Presidents, Richard DeMarco (Taxation), Marla DiResta, Jan Dubauskas, Vincent Furfaro (Information Technology), Thomas A. Gibbons.
Directors: Gary J. Balzofi ore, Bernard Eichwald, Larry R. Graber, Da-vid T. Kettig, John L. Lahey, Steven B. Lapin, Robert M. Leopold, Rachel Lipari, James G. Tatum, Roy T. K. Thung.
Balance Sheet Assets ($000)
12/31/2013
Total bonds . . .
$131,775
Total preferred stocks . . .
17,048
Total common stocks. . .
18,630
Contract loans . . .
697
Cash & short-term invest . . .
9,293
Other invested assets. . .
8,803
Funds held or dep with reins . . .
7,183
Prems and consids due . . .
24,146
Recvble from affi liates . . .
13,030
Accrued invest income. . .
938
Other assets . . .
17,960
Assets . . .
$249,503
Liabilities ($000)
