Furthermore, its fixed annuity products maintain adequate surrender charge protection. Best notes that Sentinel Security Life utilizes varying levels of reinsurance to partially mitigate new business expense strains associated with its core product segments. Expenses related to its continuing expansion efforts could dampen earnings. Best believes Sentinel Security Life will be challenged to improve its net operating performance going forward given the expense strains anticipated from projected new business growth, interest expenses associated with its surplus note issuance and the continuing challenges of managing its increasing levels of interest-sensitive liabilities through this persistent low interest rate environment. Sentinel Security Life has incurred net operating losses over the past two years that were impacted by expense strains associated with its new business growth and several "one-time" expenses. Best continues to view these marketing initiatives positively, it remains concerned that the rapid growth in new direct business production will continue to place significant downward pressure on Sentinel Security Life's risk-adjusted capitalization. Then in 2011, the company entered the senior fixed annuity market through the same SGA. In 2010, the company began distributing Medicare supplement and select plans primarily through a brokerage distribution channel under a single supervising general agent (SGA) agreement with one of the nation's largest marketing organizations specializing in the senior market. In an effort to broaden its business profile, diversify earning sources and mitigate geographic concentration risk, Sentinel Security Life embarked on two marketing initiatives. Historically, Sentinel Security Life's business profile has been concentrated in the final expense market. Best's guidelines for its current ratings at year-end 2014. Sentinel Security Life's financial leverage and interest coverage ratios are projected to be within A.M. Best notes that the company benefits from the investment expertise of its key reinsurance partners. Additionally, the ratings recognize the positive performance of Sentinel Security Life's well-diversified fixed income investment portfolio that is almost entirely investment grade and currently in a net unrealized gain position. The steady growth in net premiums achieved in its creditworthy ordinary life segment and enhanced by solid new sales of its final expense products also is viewed positively by A.M.
The ratings also recognize the company's diverse business profile that focuses on marketing final expense whole life insurance, Medicare supplement and select plans and fixed annuities to the senior market through a well-established, personal producing, non-captive general and associate general agent distribution network. The affirmation of the ratings reflects Sentinel Security Life's improved risk-adjusted capitalization resulting from the recent surplus note issuance, which supports the company's current rating level. The company's unfavorable net operating performance during the past two years adds to these concerns.
Best's concerns that despite a recent $10 million surplus note issuance, continued rapid growth in Sentinel Security Life's insurance businesses-especially its capital-intensive fixed annuity business-could outpace growth in capital, requiring it to seek additional capital infusions. The outlook for both ratings is negative. Best has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb" of Sentinel Security Life Insurance Company (Sentinel Security Life) (Salt Lake City, UT).
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