KBRA issues ratings action on Kuvare companies
Ratings agency KBRA has affirmed the financial strength ratings of life insurer Kuvare's operating subsidiaries, including Bermuda-based Kuvare Life Re.
KBRA affirmed the A insurance financial strength ratings of Guaranty Income Life Insurance Company and United Life Insurance Company with a Negative Outlook.
KBRA also affirmed the A- IFSR ratings for Kuvare Life Re (KLR) and Lincoln Benefit Life (LBL) with a stable outlook. KBRA removed the Watch Developing status from all ratings.
KLR is led by chief executive officer .
KBRA said it removed the Watch Developing status follows the closing of the sale of Kuvare Insurance Services LP (doing business as Kuvare Asset Management), a Kuvare-related entity, to Blue Owl Capital on July 1, 2024.
"KBRA believes that the investment management agreement (IMA) executed by Kuvare with Blue Owl to replace the previous IMA with Kuvare Asset Management provides enhanced capabilities while continuing to provide Kuvare with adequate control over investment guidelines, strategic asset allocation, asset liability management and risk oversight activities."
KBRA said the Negative outlooks for all entities except KLR and LBL reflected KBRA’s expectation that planned new business growth across the Kuvare organisation will continue to create earnings and capital strain at GILICO and ULIC which exceed internally generated capital and necessitate an ongoing need to source capital externally.
"Over recent years, the growth in debt has significantly outpaced the growth in common equity and led to increased financial leverage at KUS which may reduce the company’s ability to support its current rate of growth," the agency warned.
It added: "The Stable Outlooks for KLR and LBL reflect KBRA’s expectation that the companies will maintain sound capitalisation while continuing to build the reinsurance book of business with transactions across a broader geographic footprint. The Outlooks also reflect KBRA’s expectation that the reinsurance businesses will continue to maintain a high credit quality, liquid investment portfolio that is well duration matched to its reserves.
"For KLR, the Outlook also reflects KBRA’s expectation that KLR will maintain regulatory approval to use the Scenario Based Approach (SBA) for loss reserving."
KBRA said the ratings reflect sound risk adjusted capitalisation at the operating companies, the proven ability of the holding companies to raise capital to support growth, continued distribution expansion and product enhancements, and generally high credit quality and diversified investment portfolios. LBL and KLR portfolios are high credit quality while the portfolios of GILICO and ULIC are solid credit quality relative to industry averages.
However it added: "Balancing these strengths are challenges to certain financial results, elevated financial as well as reinsurance leverage, a high proportion of interest-sensitive reserves, and a highly competitive market environment. Kuvare’s strong new business origination has created earnings and capital strain which, in turn, has created the need for external capital given that internally generated capital has not kept pace with growth.
"Kuvare makes extensive use of both internal and external reinsurance, thereby elevating reinsurance leverage relative to peers. External reinsurance exposures are typically to high credit quality counterparties or collateralised, although there are some notable concentrations with both internal and external reinsurers. Overall, the trend over the recent past has been toward writing/assuming more interest-sensitive business.
"While the (re)insurance marketplace for fixed and fixed indexed annuities is large, it is also competitive and includes many players, some of which are larger, have greater resources, and benefit from well-known brands."
KBRA said an increase in common equity supported by a larger portion of internally generated capital and reduced financial leverage could lead to a positive rating action, as could reduced volatility in earnings and profitability ratios.
"Significant deterioration in risk profile, a lower proportion of common equity in the capital structure and/or a declining portion of internally generated capital, higher financial leverage or a material decline in cash coverage at KUS, material realised investment losses or deterioration in the quality or performance of the investment portfolios, more highly concentrated interest-sensitive business mix, material negative variance to risk-based capital ratio targets or departure of a core management team member could result in a negative rating action," it said.
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