A.M. Best Affirms Ratings of Gerber Life Insurance Company

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a” of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). The outlook for both ratings is negative.

Gerber Life is a wholly owned subsidiary of Nestlè Insurance Holdings, Inc, which is a unit of Nestlè, S.A. (Nestlé) (Switzerland) [Swiss: NESN]. Nestlè is a food and beverage conglomerate with operations in almost every country around the world.

The affirmation of Gerber Life’s ratings primarily reflects its solid risk-adjusted capitalization and good earnings diversity through its stable inforce block of ordinary life insurance and profitable medical stop-loss insurance business. Gerber Life also enjoys good brand recognition within the marketplace and utilizes the Gerber Products (Gerber) company logo, which has allowed the company to grow into one of the largest direct response carriers in the industry.

A.M. Best also notes that Gerber Life’s statutory operating results have improved over the most recent period, and have been regularly impacted by increased marketing and acquisition costs, as well as other one-time items associated with its divestiture from Novartis.

While earnings have improved over the most recent period, Gerber Life has experienced a decline in new business sales over the past two years due to the recessionary economic environment and a strategic decision to reduce direct-to-consumer advertising expenses associated with its least profitable direct-to-consumer products and channels.

The negative outlook primarily reflects Gerber Life’s negative sales trend in its core ordinary life line of business—which is projected to continue in 2010—and the challenging market environment in which it operates. Additionally, A.M. Best notes that the mix of earnings has shifted significantly over the last several years in favor of the medical stop-loss line, which A.M. Best views to be less creditworthy than ordinary life. Overall, A.M. Best believes that Gerber Life may be challenged to increase its top line growth while maintaining adequate profit margins over the near term.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.