10 February 2023Analysis

KBRA changes outlook for Kuvare companies and subsidiaries

Kroll Bond Rating Agency (KBRA) has affirmed the insurance financial strength ratings (IFSRs) of A for Guaranty Income Life Insurance Company (GILICO) and United Life Insurance Company (ULIC).

KBRA has also affirmed the issuer ratings of BBB for Kuvare UK Holdings (KUK) and Kuvare US Holdings (KUS) and the debt rating of BBB- on KUS’ $225 million Fixed Rate Reset Cumulative Preferred Stock due 2051. The outlooks for these ratings have changed from stable to negative. In addition, KBRA affirms the A- IFSR of Kuvare Life Re (KLR) with a stable outlook. Finally, KBRA has downgraded the IFSR on Lincoln Benefit Life Company (LBL) from A to A- with a stable outlook.

The rating agency said that the negative outlooks reflect its expectation that planned new business growth across the Kuvare organisation will continue to create earnings and capital strain at the operating companies in excess of internally generated capital and necessitate an ongoing need to source capital externally. Over recent years, the growth in debt and preferred stock outstanding has significantly outpaced the growth in common equity and led to increased financial leverage at KUS which may reduce the company’s financial flexibility to support its current rate of growth.

The downgrade of LBL’s IFSR reflects the continuing material capital needs across LBL and its subsidiary, Lancaster Re Captive Insurance Company (LanRe), to support its ULSG (universal life policies with secondary guarantee) product. Other contributing factors are high investment and reinsurance leverage, excess mortality in recent years and a combined net loss from operations at LBL/LanRe since its acquisition by Kuvare in 2019. KBRA also views LBL’s ability to grow as more limited due to its exclusive focus on institutional sales which depends on an increasingly competitive market for annuity reinsurance transactions. The stable outlook reflects KBRA’s expectation that LBL will maintain sound capitalisation, sustain a diversified and high credit quality investment portfolio, and continue to appropriately manage ALM/liquidity.