Fitch Affirms Pan-American Life's IFS Ratings; Outlook Stable

Fitch Ratings has affirmed the 'A' Insurer Financial Strength (IFS) rating of Pan-American Life Insurance Company (PALIC) and its wholly owned subsidiary, Pan-American Assurance Company (PAAC), collectively referred to as Pan-American. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating affirmation reflects the company's continued very strong capitalization, relatively low risk liability profile, improved operating performance, and conservative financial management. The ratings also consider the competitive challenges facing Pan-American when operating in the U.S. and competing with companies that have significantly greater scale, market share, pricing power and distribution capabilities. Pan-American's non-U.S. insurance operations are concentrated in Latin American and Caribbean countries, the majority of which have sovereign ratings that are lower than Pan-American's rating.

Pan-American's very strong balance sheet continues to be a key ratings driver. The company's risk-based capital was estimated at 548% at Sept. 30, 2013 compared to 510% at year-end 2012. In January 2013, Pan-American sold its ownership in a local hotel which had a positive benefit on RBC. Operating leverage of about 5 times (x) compares favorably to an industry average of 9x. Consolidated financial leverage for the Pan-American Life Insurance Group, Inc. (PALIG) is moderate at 8% and the total financing and commitments (TFC) ratio of .1x is among the lowest in Fitch's life insurance universe.

Fitch believes that Pan-American's earnings have become increasingly stable and predictable as management has successfully streamlined operations and addressed legacy issues. Fitch also notes that Pan-American's target markets are making a larger contribution to earnings, and the company is less reliant on its closed block of ordinary life business in the U.S. Operating results thus far from the recent acquisition of select Latin American and Caribbean businesses of MetLife, Inc. have been strong and have allowed the company to expand its footprint in the region. Fitch believes continued success in the integration of this business will improve the mix of Pan-American's revenues and earnings between its core segments.

Pan-American has little exposure to equity market volatility or disintermediation risk given its liability structure, which is made up primarily of life insurance and accident and health reserves. Operating cash flow is good, and PALIC is a member of the Federal Home Loan Bank of Dallas, which provides borrowing capacity of roughly $90 million, none of which was utilized as of Sept. 30, 2013.

Fitch does not anticipate an upgrade in the near-to-intermediate term. Fitch views Pan-American as a solid niche player which under Fitch's criteria has a market position, size and scale supportive of a 'BBB' rated company. However, the company's very strong balance sheet fundamentals provide Pan-American with an uplift in its rating to the 'A' category. Fitch does not expect a change in the balance of these key rating attributes to occur over the ratings horizon.

RATING SENSITIVITIES

The key rating triggers that could result in a downgrade include:

--A sustained drop in the company's U.S. RBC ratio below 400%;

--A significant increase in consolidated financial leverage to over 20% or an increase in surplus notes as a percentage of total adjusted capital to over 25%;

--Deterioration in financial results that includes GAAP earnings-based interest coverage falling below 4x;

--Inability to successfully integrate MetLife, Inc. acquisition.

Fitch affirms the following ratings with a Stable Outlook:

Pan-American Life Insurance Company

Pan-American Assurance Company

--IFS at 'A'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816872

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings, Inc.
Primary Analyst
Tana M. Higman, [phone]
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA, [phone]
Managing Director
or
Committee Chairperson
Keith M. Buckley, CFA, [phone]
Managing Director
or
Media Relations
Brian Bertsch, [phone]
[e-mail]