OLDWICK, N.J.–(BUSINESS WIRE)– A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of âa-â of MTL Insurance Company (MTL) (Oak Brook, IL). Concurrently, A.M. Best has assigned a debt rating of âbbbâ to the $30 million 6.25% surplus note due March 2028 of MTL. The outlook assigned to this rating is negative.
The negative outlook reflects A.M. Bestâs concerns over MTLâs modest operating profitability for its ratings, the servicing requirements on its recently issued surplus note and an increased risk appetite within its investment portfolio. MTLâs statutory operating performance, while somewhat improved in 2012, is expected to decline in the near term, and overall profitability trends have been below A.M. Bestâs expectations.
Proceeds from the surplus note will be used for general corporate purposes including to support the capital strain associated with MTLâs projected new business growth. This additional capital also gives MTL greater flexibility in asset selection to take advantage of market opportunities. While the resulting increase in financial leverage is in line with the current ratings, A.M. Best is concerned with the impact of interest costs on MTLâs statutory and GAAP earnings in the near to intermediate term.
Concerns are somewhat mitigated by MTLâs favorable product mix, focusing on whole life products within a niche market, as well as its more than adequate risk-adjusted capitalization to support growth at the present time. MTLâs additional capital reduces its exposure to commercial mortgage loans within its investment portfolio, which remains high compared to the industry. The performance of the mortgage portfolio has stabilized after some deterioration in the years following the 2008 financial crisis.
A revision to stable on the outlook could result if the companyâs statutory and GAAP operating results are in line with A.M. Bestâs expectations and there is no deterioration in the performance of the investment portfolio. Downward rating pressure could occur if MTLâs operating performance does not improve, there is a sizeable decline in its risk-adjusted capitalization or measurable investment losses occur.
The methodology used in determining these ratings is Bestâs Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bestâs rating process and contains the different rating criteria employed in the rating process. Bestâs Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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A.M. Best Co.Keith BehrmannFinancial Analyst(908) 439-2200, ext. 5733keith.behrmann@ambest.comorRichard D. McMillanManaging Senior Financial Analyst(908) 439-2200, ext. 5615richard.mcmillan@ambest.comorRachelle MorrowSenior Manager, Public Relations(908) 439-2200, ext. 5378rachelle.morrow@ambest.comorJim PeavyAssistant Vice President, Public Relations(908) 439-2200, ext. 5644james.peavy@ambest.com