KBRA Assigns Insurance Financial Strength Ratings to Manhattan Life Group

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns insurance financial strength ratings (IFSR) of BBB+ to ManhattanLife Assurance Company of America and its three key operating subsidiaries—Western United Life Assurance Company; The Manhattan Life Insurance Company; and Family Life Insurance Company. Additionally, KBRA assigns an issuer rating of BB+ to Manhattan Life Group, Inc., a Texas-based insurance holding company that owns the four operating entities mentioned above. The Outlook for all ratings is Stable.

The ratings reflect Manhattan Life Group’s (MLG) favorable level of operating performance, that has been supported by a direct to independent distributor model for its fixed annuity business which lowers distribution expenses and mitigates the company’s limited scale. The ratings also reflect the group’s expanding geographic spread and operating flexibility as MLG’s four insurance entities all have broad state licensing. Additionally, the absence of a significant amount of inforce annuities at high minimum guaranteed rates provides the company with the ability to forestall material spread compression during a period of moderately declining rates. MLG has a diverse product portfolio including individual life and health insurance, annuities, Medicare Supplement and voluntary benefits. KBRA believes MLG’s earnings diversification will be further enhanced by extending its worksite reach into the mid-to-large market space via the 2018 acquisition of Humana’s workplace voluntary benefits business.

Balancing these strengths are MLG’s moderate level of risk-adjusted capital, coupled with higher than typical product/asset leverage that makes the company’s capital position more susceptible to dislocations in the financial markets. The group’s capitalization has been improving over the past few years, and KBRA expects MLG to either maintain or improve current risk-adjusted levels in the near to medium-term. Additionally, KBRA believes MLG’s financial flexibility is constrained in part by its limited access to diverse sources of cost-effective capital and liquidity. KBRA notes that the insurance company invested asset portfolios have an outsized exposure—relative to surplus as well as to industry peers—to BBB category securities, which are likely to experience stress when the credit cycle turns. MLG’s enterprise risk management process is currently adequate, yet is evolving, and requires further enhancement given the recent expansion of the group’s operating profile. Finally, while the recent Humana transaction has caused financial leverage and double leverage to increase, KBRA views the current levels as manageable and are expected to decline going forward.

The stable outlook reflects KBRA’s expectation that MLG will continue to either maintain or improve its current risk-adjusted capitalization in the near to medium term. Prospective operating performance is expected to be solid, but it may fall slightly below what was realized 2018. Additionally, KBRA anticipates MLG’s favorable operating results to drive the retention of earnings and organic growth in capital, thus causing financial leverage to decline from about 37% at year-end 2018 to the 28%-30% range by year-end 2020.

A detailed report will soon be available on www.kbra.com.

Related Publications: (available at www.kbra.com)

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Brian Spadaccino, CFA, Director

(646) 731-2437

bspadaccino@kbra.com

Andrew Edelsberg, Managing Director

(646) 731-2371

aedelsberg@kbra.com

Donna Halverstadt, Managing Director

(646) 731-3352

dhalverstadt@kbra.com