A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Lombard International Life Assurance Company (LILAC) (formerly Philadelphia Financial Life Assurance Company) and its direct subsidiary, Lombard International Life Assurance Company of New York (formerly Philadelphia Financial Life Assurance Company of New York). Collectively, the two companies are referred to as the Lombard Life Group. Both companies are headquartered in Philadelphia, PA. The outlook for all ratings is stable.

LILAC’s ultimate holding company, LIA Holdings, Ltd., is owned by funds managed by the Tactical Opportunities Group of The Blackstone Group L.P. (Blackstone) (NYSE:BX). In June 2015, these funds acquired Philadelphia Financial Group Inc.’s life insurance companies, including Philadelphia Financial Life Assurance Company and its subsidiary, Philadelphia Financial Life Assurance Company of New York. Subsequently, the two life companies were rebranded under the Lombard name.

The ratings reflect the group’s competitive position in the privately placed insurance market, its low-risk insurance liability profile and its adequate risk-adjusted capitalization. The group continues to enjoy a strong position in the privately placed U.S. life and annuity markets. The group’s business and liability profile contributes to its strength as it is primarily a separate account product platform in which policyholders take the investment risk. As a result, separate accounts make up the majority of total assets. There are no living benefit guarantees and mortality risk is minimal, with only $125,000 retained per life and the rest being ceded to a variety of reinsurers. The group’s operations are also supported by its strong balance sheet, with the majority of its general account assets held in investment grade corporate bonds and policyholder loans, and its adequate risk-adjusted capitalization, supplemented by its lower risk liability structure. Risk-adjusted capital is adequate and consistent with A.M. Best’s rating guidelines.

Most recently, the group has had positive asset growth, driven by good net deposits and strong investment performance, while at the same time controlling general expenses. Although modest losses have been reported in the past, LILAC was profitable in 2013, 2014 and through the first three quarters of 2015. A.M. Best expects this trend to continue as the group executes on its domestic ultra-high net worth private placement strategy. A.M. Best views positively the organization’s role within the broader operations of LIA Holdings.

Partially offsetting these positive rating factors are the challenges related to operating in an ultra-high net worth business, given the complexity of the customized products and services offered. Going forward, the group also remains susceptible to an ever-changing regulatory landscape with respect to domestic and international taxation. A.M. Best also notes the inherent unevenness of various financial metrics and the company’s adequate but below average risk-adjusted capitalization relative to similarly rated life companies. Operating performance over the past five years reflects the impact of the low volume, high premium nature of the private placement market, which can cause volatility in various financial metrics and a growing business platform, which has resulted in some one-time charges.

Concurrent with the rating actions on the Lombard Life Group, A.M. Best has withdrawn the ICR of “bbb-” of Philadelphia Financial Group Inc., LILAC’s former parent company. With the acquisition by funds associated with Blackstone and a concomitant reorganization, this entity is no longer the parent or an affiliate of LILAC. Since it is now viewed by A.M. Best to be a non-insurance holding company, A.M. Best does not have a suitable rating methodology to arrive at a final rating outcome prior to the withdrawal of its rating.

Factors that could result in a negative rating action include a significant decline in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) model, net operating performance that falls markedly short of A.M. Best’s expectations or significant tax law changes that would negatively impact the group’s ability to execute on its business model.

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.