THE INDEPENDENT ORDER OF FORESTERS

Transcription

1 THE INDEPENDENT ORDER OF FORESTERS Toronto, Ontario, Canada Ultimate Parent: Independent Order of Foreters THE INDEPENDENT ORDER OF FORESTERS 789 Don Mills Road Toronto, ON, Canada M3C 1T9 Web: Tel.: Fax: AMB#: Ultimate Parent#: Data shown throughout this report is in Canadian dollars. BEST S CREDIT RATING AIIN#: AA Best s Financial Strength Rating: A Outlook: Stable Best s Financial Size Category: XIV RATING RATIONALE Rating Rationale: The rating of The Independent Order of Foresters (Foresters) reflects its long-established presence as a Canadian fraternal benefit society, its cross-border geographic diversification, strong risk-adjusted capitalization and profitable insurance operations on a consolidated basis. Partially offsetting these factors are challenges to improve net operating results during the continued low interest rate environment and continued efforts to reduce its expense overruns as the organization diversifies its business and increases premium scale in its principal U.S. marketplace. A For more than 140 years, Foresters has been providing fraternal benefits as well as a full array of life insurance, protection and asset accumulation products to its members in Canada, the United Kingdom and the United States. Foresters further diversified its business profile through acquisitions in recent years, adding increased policies and assets under management, as well as opening opportunities for cross-selling. Foresters acquired Unity Life in 2008, which was later renamed Foresters Life in 2012 to increase operations in Canada. In 2011, Foresters acquired First Investors Consolidated Corporation, a successful financial services company in the United States, which includes a broker dealer, mutual funds, investment management, a transfer agency, and a life insurance company with a variety of variable and traditional life and annuity products. Additionally, Foresters acquired two blocks of business in the United Kingdom during 2013, The Children s Mutual and a Child Trust Fund book. Foresters has reported consistent growth in premiums in recent years as distribution agreements with Independent Marketing Organizations and support from First Investors have assisted in capturing growth in the U.S. marketplace, while the acquisition of Foresters Life has tripled its premium revenue in Canada. Foresters has consistently maintained a favorable risk-adjusted capital position, supported by a high quality fixed-income investment portfolio and an actively managed asset-liability management program. Foresters overall consolidated operating performance has remained profitable, supporting strain associated with new business growth, as it continues to reduce its operating expense gap associated with the integration of business acquisitions and overall operating efficiencies. Moreover, the U.S. Branch has reported improvement in statutory operating losses as improved profitability on renewal business offsets new business strain. Partially offsetting these factors is the effect the current economic environment has had on the company s earnings. As interest rates remain low, spread compression on the life and annuities guarantees has decreased profits on those product lines. As a result, Foresters has either withdrawn or repriced a number of its products in efforts to improve earnings. Additionally, 2014 A.M. Best Company, Oldwick, NJ Printed July 10, Page 1 of 5

2 Foresters has historically experienced large expense overruns. The continued integration and developed synergies between Foresters and its affiliates have helped to reduced overruns by two-thirds since 2006; however, a relatively high, albeit declining, operating cost structure will continue to challenge the company s efforts to reduce expenses. The current rating of Foresters is adequately supported by its key financial metrics for the near to medium term. Key rating drivers that may lead to negative rating actions include sustained deterioration in the operating performance and sizable decreases in equity or risk-adjusted capitalization. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 07/02/14 A 05/26/11 A 07/03/13 A 05/07/10 A 07/06/12 A KEY FINANCIAL INDICATORS ($000) Capital & Premiums Equity AOCI Written Invest Income Income Year Assets ,408,911 1,357, , , ,315 95, ,397,816 1,426, , , , , ,748,143 1,444,003 54, , ,885 34, ,760,856 1,509,623 47, , ,370 79, ,729,910 1,681,691 97, ,460-89, ,861 (*) Beginning year end 2011, Total Assets and Total Liabilities are presented on a gross basis and include Segregated Accounts. (*) Beginning 2011, Canadian insurers began reporting under International Financial Reporting Standards (IFRS). Data items prior to 2011 are stated under Canadian GAAP, as originally filed with A.M. Best. As a result, prior period may not be comparable. CORPORATE OVERVIEW The Independent Order of Forester (Foresters) is a fraternal benefit society originally founded in 1874 as an outgrowth of the Ancient Order of Foresters (U.S.). Foresters is organized and registered under the Companies Act of Canada, maintaining operations in Canada, the United Kingdom, and the United States. Individuals become voting members of the Society when they accept its Common Bond and are insured under a proprietary life insurance, annuity or investment product from Foresters or one of its wholly owned insurance subsidiaries in the United Kingdom and Canada. Non-Voting membership (social membership) status is available for junior certificate holders and certain non-proprietary product holders. Foresters exists to enrich the lives of its members, their families, and the communities where they live. Every part of what Foresters does, from the insurance products it sells and its commitment to the community, ties back to the purpose of enhancing the well-being of families. To help achieve this purpose, Foresters partners with other organizations who have the same vision and works closely with Community Partners to provide members with opportunities to make a difference in their communities. National Community Partners are: KaBOOM!, Children s Miracle work Hospitals, Ronald McDonald House and Cash for Kids. Additionally, Foresters offers various fraternal member benefits, including scholarship programs and Legal Link, which provides members with access to free and discounted legal services. With a membership surpassing one million individuals, Foresters measures its success not only through financial strength, but also by the positive impact it has in the community. The majority of Foresters business is conducted in the United States, with geographic diversification achieved through its operations in Canada and the United Kingdom. Foresters wholly owned insurance subsidiaries include Forester Holdings (Europe) Ltd., which is the immediate parent company of Forester Life Limited, where all UK life insurance business is written, Foresters Life Company, formerly Unity Life of Canada, acquired in 2008 to enhance Foresters presence in the Canadian life insurance market, and First Investors Consolidated Corporation (FICC) and its affiliates in the U.S., which includes First Investors Life Company (FIL). Foresters acquired FICC in 2011, along with its family of companies, including a life insurance company, First Investors Life (FIL), a registered broker-dealer, a registered investment advisor and a transfer agent. The Society plans to operate FICC as a standalone entity in the Forester s U.S. Division. Additionally, FIL s field force will benefit from the marketing support provided by Foresters while also providing a new distribution channel for Foresters products. CORPORATE STRUCTURE AMB# COMPANY NAME DOMICILE % OWN Independent Order of Foresters Canada First Investors Consolidated DE First Investors Life Ins Co NY Forester Holdings (Europe) Ltd United Kingdom Forester Life Limited United Kingdom Foresters Life Co Canada BUSINESS PROFILE Foresters focuses on the middle-income market combining its financial service expertise with its community involvement. The Society had historically operated using career agents until transferring to independent agents and independent marketing organizations (IMOs) in the late 2000s. The new structure proved to be very successful in substantially increasing proprietary sales in the United States. Currently in the United States, Foresters markets a range of life insurance products, including universal life, whole life, and term life, through its IMOs. In addition, variable products and mutual funds are offered through Foresters wholly owned subsidiaries, First Investors Consolidated Corporation (FICC) and Foresters Equity Services, Inc. (FESCO). The U.S. operations continue to focus on diversifying the product portfolio through the introduction of new permanent products, recruiting additional IMOs and producers to sell Foresters products, marketing the Foresters value proposition to appointed producers, and leveraging Foresters fraternal nature with prospects and members. Foresters strategic positioning in the Canadian marketplace, including marketing and distribution capabilities, were enhanced greatly with the acquisition of Foresters Life in early Foresters Life continues its focus on its traditional life insurance business through its national network of independent distribution partners, and on group creditor insurance. Foresters Life is also Foresters primary marketing representative in Canada and offers Foresters proprietary universal life, participating whole life, and fixed interest annuities through its independent distribution channel. In the United Kingdom, Foresters continues to raise name and brand awareness, build its captive distribution sales force, enhance its product portfolio, and target new membership while encouraging greater membership affinity and participation. In addition to traditional life insurance, Foresters UK offers a range of unit linked savings and investment products including tax efficient deferred annuities, individual savings accounts and child trust funds. In 2011 Foresters UK subsidiary Foresters Life Limited completed the transfer of the Communication Workers Friendly Society a with-profits provider and assets under management of approximately $170 million. In 2013, Foresters Life Limited acquired The Children s Mutual, which is comprised of a Life and Pension book as well as a Child Trust Fund book of business, adding over a million policies and $2.7B in funds under management. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR A.M. Best Company, Oldwick, NJ Printed July 10, Page 2 of 5

3 Period Prem Ceded NPW Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: The company is licensed in all provinces and territories. It is also licensed in the United States in the District of Columbia and all states. The company has licensed subsidiaries in Great Britain BY-LINE BUSINESS ($000) DPW Prem Assumed Product Line ($000) (%) ($000) (%) Individual life 29, , Individual annuities 1, Individual A&S Non-Canadian 354, Total 384, , Prem Ceded NPW Product Line ($000) (%) ($000) (%) Individual life , Individual annuities 1, Individual A&S Non-Canadian 28, , Total 29, , BY-LINE RESERVES ($000) Product Line Other 552, , , , ,812 Total 552, , , , ,812 LIFE POLICIES STATISTICS Individual Policies Group Certificates Year Issued In Force Issued In Force , , , , , , , , , ,731 LIFE INSURANCE IN FORCE ($000) Year Individual Life Group Total In Force ,856,051 24,856, ,571,879 25,571, ,708,606 28,708, ,194,755 30,194, ,098,334 33,098,334 Individual Life NEW LIFE BUSINESS ISSUED ($000) Total Non- Par Group Issued (%) Par (%) Year ,670,218 6,670, ,741,389 5,741, ,290,351 6,290, ,845,269 5,845, ,371,523 4,371, GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) Out of Canada 354, , , , ,862 Ontario 17,839 15,999 14,845 15,634 16,243 Alberta 4,492 4,215 4,116 4,490 5,120 British Columbia 4,139 3,680 3,555 3,847 4,343 Quebec 2,076 1,776 1,504 2,144 1,736 Manitoba ,013 Saskatchewan Nova Scotia ,134 New Brunswick Newfoundland and Labrador All Other Total 384, , , , ,353 RISK MANAGEMENT As the complexity of Foresters profile has increased, Foresters management has taken initiatives to broaden and deepen the risk management discipline within each business unit individually and as a whole. The risk management framework works to identify risk areas and establish clear accountability across the risk spectrum. Primary risk categories include Strategic Risk, Capital Adequacy, Liquidity Risk, Risk, Investment Risk, Fraternal Risk, Legal & Regulatory Risk and Operational Risk. The ERM Committee is overseen by the Board s Risk and Investment Committee. The Board approves the Risk Management Policy annually which outlines Foresters Risk Appetite and Tolerances, the Board s and Management s responsibilities in managing risks, the risk management governance and structure, and the ERM Committee Mandate. Individual risks are identified, measured, mitigated and monitored at the divisional or operational level and reported to the ERM Committee quarterly. The committee then analyzes the company s overall risk profile, factoring in the correlation and scale of each business unit, and develops a business strategy to mitigate risk exposure. OPERATING PERFORMANCE Operating Results: Foresters has experienced continued profitability in recent years, despite volatile markets impacting bottom line results. Profitability has been supported mostly due to strong investment income results and large realized capital gains which have offset the strain associated with new business growth, however earnings have fluctuated with changes in the economic environment. Foresters operational results have also been enhanced by implementation of strategies aimed at reducing both maintenance and acquisition costs. Operational results in recent years benefited from cost reduction initiatives, increased scale and adjustments to post-retirement benefits. A.M. Best notes that recent fluctuations in interest rates, equity markets and the Canadian/U.S. dollar exchange rates have had a significant impact on the company s earnings. Foresters earnings, on a Canadian IFRS basis, are primarily driven by the U.S. Branch and First Investors segments. The Canadian operations, including Foresters Life, and Forester U.K. provide approximately one-third of net premiums written, about account for less than ten percent of Foresters net income for Excluding the subsidiary entities, Foresters operations are primarily conducted in the United Sates, with the U.S. Branch representing over ninety percent of direct premiums written. On a U.S. Statutory basis, the U.S. branch has generally reported sizable losses over the last five years driven by reserve increases on the Universal Life with secondary guarantees book of business and increased commission and general expenses due to increased sales A.M. Best Company, Oldwick, NJ Printed July 10, Page 3 of 5

4 PROFITABILITY TESTS Comm & NOG Operating Ben Paid Exp to to Tot NOG to Return on Total Year to NPW NPW Assets Tot Rev Equity Yield Return Year Avg BALANCE SHEET STRENGTH Capitalization: Foresters has reported significant capital growth since 2008 and risk-adjusted capital position remains well above industry averages. Capital growth has been supported by continually positive earnings and is enhanced by its high credit quality fixed-income investment portfolio and an actively managed asset-liability management process. Additionally, the Foresters enters into forward exchange contracts to mitigate its exposure to foreign exchange rate fluctuations between the United States Dollar and British Pound with the Canadian Dollar. A.M Best notes, however, that total capital and risk-adjusted capitalization at Foresters U.S. Branch, based on U.S. statutory accounting, have declined since 2010 as a result of net losses. Foresters strictly monitors the risk-adjusted capitalization of each subsidiary to ensure adequacy. Capital contributions were provided to Foresters Life in 2012, and parental support is expected to continue at each entity, if necessary. CAPITAL GENERATION ANALYSIS ($000) Source of Capital/Surplus Growth Pre-tax Change % Chg Operating Income Other in in Year Gain Taxes Changes C&S C&S ,798 4,140 18, , ,965 4,140-36,755 69, ,054 4,140-17,297 17, ,177 1,943-13,614 65, ,001 4,140 57, , Yr Total 448,995 18,503 7, , QUALITY OF CAPITAL/SURPLUS ($000) Year-End Other Conditional Unassigned Capital Adjusted Year Debt Capital Surplus & Equity C&S ,357,316 1,357,316 1,357, ,426,386 1,426,386 1,426, ,444,003 1,444,003 1,444, ,509,623 1,509,623 1,509, ,681,691 1,681,691 1,681,691 LEVERAGE ANALYSIS C&S to Reins NPW Change Year Liab Leverage to Capital in NPW Current BCAR: 401 Liquidity: Foresters has persistently maintained strong liquidity measurements in both immediate and ongoing scenarios at each of its operating segments. The company s liquidity needs are supported through generally positive cash flows and modest cash and short-term holdings. Foresters preserves a conservative investment portfolio that is primarily made up of long-term, investment-grade fixed-income securities. The overall net portfolio yield has dropped as the low interest rate environment persists, which may pressure the company s liquidity support and require partial liquidation of the investment portfolio. LIQUIDITY ANALYSIS Mtg & Cred Affil Operating Ten Lns Invest Cash Quick & RE to Year Flow($000) Liquidity to Capital Capital Investments: Following the economic downturn in 2008, Foresters revised its investment policy to reduce its exposure to equity market volatility. The company continues to hold a modest investment in equities, but it has been steadily decreasing as a proportion of invested assets. Moreover, management has decided to liquidate its mortgage loan holdings and expects the current loans to be paid off within the next few years. A notable adjustment was the asset allocation within the world surplus account, which has been divided into two pieces. The short-term liquid pool is comprised of fixed-income securities and supports business growth while the long-term total-return-oriented pool allows additional diversification in emerging markets and commodities. The majority of Foresters invested assets are comprised of investment-grade fixed-income securities that are well diversified between government, agency, and corporate bonds in the U.S. and Canada. INVESTMENTS - TOTAL PORTFOLIO Investments (000) 4,316,310 4,389,697 4,382,048 4,331,211 4,372,487 Bonds and debentures Common shares Mortgage loans Real Estates Cash & short term investments Affiliated investments Other investments HISTORY Date Incorporated: 07/23/1881 Date Commenced: 07/23/1881 Domicile: Canada Mergers: Ancient Order of United Workmen of Ontario, 1926; Order of Canadian Home Circles, 1926; Royal Templars of Temperance, 1931; Modern Brotherhood of America, 1931; Catholic Mutual Benefit Association, 1952; Royal Clan, Order of Scottish Clans, 1971; Canadian Foresters Life Society, 1992; London Area Mobile Physiotherapy Service Limited. (United Kingdom subsidiary), 1996, Unity Life of Canada, First Investors Life Company, A.M. Best Company, Oldwick, NJ Printed July 10, Page 4 of 5

5 MANAGEMENT Officers: President and Chief Executive Officer, Anthony M. Garcia; Presidents and Senior Vice Presidents, Sharon T. Giffen (Canadian Division), Anthony W. Poole (US Division); President, Brian Isabelle (International Fraternal); Senior Executive Vice President and Senior Vice President, Bill Lipkus; Senior Vice President and Chief Financial Officer, Paul D. Reaburn; Senior Vice President and Chief Marketing Officer, Kasia A. Czarski; Senior Vice President, Secretary, General Counsel and Chief Compliance Officer, Katharine E. Rounthwaite; Senior Vice President and Chief Officer, Suanne M. Nielsen (Talent); Senior Vice President, Euan Allison (UK Division). Directors: Sonia A. Baxendale, James M. Bowden, Richard M. Freeborough (Chairman), Anthony M. Garcia (ex-officio), Brian A. Isabelle, Robert E. Lamoureux, Frank N.C. Lochan, Martha E. Marcon, Laraine J. Morris, David E. Morrison, David R. Saunders, John B. Scott, Michael Stramaglia, Christopher J. Stranahan, Wendy A. Watson. REGULATORY An annual review was also conducted by the Office of the Superintendent of Financial Institutions, Canada. Annual audits in the U.K. are conducted by the Financial Services Authority. The 2013 annual independent audit of the company was conducted by KPMG, LLP. The annual statement of actuarial opinion is provided by Ralph Ovsec, FSA, FCIA, MAA, VP and Chief Actuary. Reserve basis: (Current ordinary business): In accordance with the Canadian Asset and Liability Method. Explicit assumptions made for interest, mortality, lapse, expense. Assumptions are updated as indicated by emerging experience. Margins for adverse deviation are added to each assumption. REINSURANCE The maximum net retention on any one life is $1,000,000. FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2013 Assets Liabilities Bonds 3,271,142 actuarial liabilities 2,769,313 Common shares 191,251 Accounts payable 19,789 Mortgage loans 826 Other policy liabilities 119,623 Real estate 31,754 Other liabilities 57,664 Contract loans 175,448 Segregated funds 81,830 Cash 40,331 Total liabilities 3,048,219 Short-term investments 23,996 Policyholders equity 1,681,691 Accounts receivable 22,637 Accrued invest income 34,682 Other assets 856,013 Segregated funds 81,830 Assets 4,729,910 Total 4,729,910 SUMMARY OF OPERATIONS ($000) Premiums: Benefits paid 268,940 Individual life 358,868 Change in reserves -364,430 Individual annuities 2,711 Plcyhldr divs & refunds 27,469 Acc & sickness individual 1,881 Commissions 105,611 Total premiums 363,460 Gen exp & taxes 150,462 investment income -89,086 Other expenses 8,616 Misc income 41,295 Total 315,669 Total 196,668 Gain from operations before IT & extraordinary items ,001 Provision for inc taxes... 4,140 operating inc before extraordinary items ,861 income (loss) ,861 income ,861 Why is this Best s Rating Report important to you? A Best s Rating Report from the A.M. Best Company showcases the opinion from the leading provider of insurer ratings of a company s financial strength and ability to meet its obligations to policyholders, as well as its relative credit risk. The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of the insurance companies since A Best s Financial Strength Rating is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. The rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. The company information appearing in this pamphlet is an extract from the complete company report prepared by the A.M. Best Company or A.M. Best Europe Rating Services Limited. For the latest Best s Financial Strength Ratings along with their definitions and A.M. Best s Terms of Use, visit the A.M. Best website at You may also obtain AMB Credit Reports by visiting our site or calling our Customer Service department at , ext To expedite your request, please provide the company s identification number (AMB#) A.M. Best Company, Oldwick, NJ Printed July 10, Page 5 of 5