KBRA Affirms Rating for GCU
23 Jan 2025 | New York
KBRA affirms the insurance financial strength rating (IFSR) of A- for GCU, a fraternal benefit society domiciled in Beaver, Pennsylvania. The Outlook is Stable.
The rating reflects GCU’s demonstrated trends of surplus growth, supported by historically strong profitability. Despite challenges posed by a prolonged low-rate environment, GCU’s balance sheet has grown steadily, and long term membership growth stands in contrast to declining trends in the fraternal industry. Although recent results are weaker, GCU has demonstrated an ability to adjust crediting rates and maintain healthy spreads. The company remains focused on controlled, strategic growth, particularly in its fixed indexed annuity product line.
Balancing these credit strengths is GCU’s noteworthy exposure to spread compression within its legacy annuity block due to moderately high minimum guaranteed crediting rates, exposure to disintermediation risk, and an increasingly competitive landscape. Sustained spread compression has impacted results and, while viewed as manageable, the Society’s investment portfolio faces reinvestment and credit risk. However, the higher interest rate environment provides a more favorable setting to replicate GCU’s historical trend of robust returns. GCU’s business mix remains concentrated, with reserves predominantly interest sensitive. While life sales and geographic expansion are strategic priorities, meaningful diversification will likely occur over the medium to long term.
Factors that could positively impact the rating include sustained growth in earnings relative to historical earnings levels, continued favorable capital trends, as well as a significant increase in risk-adjusted capitalization, materially improved reserve mix driven by growth in life sales, and continued and controlled execution of geographic expansion efforts.
Factors that could negatively impact the rating include material adverse change in risk profile, sustained decline in earnings and/or underperform projections provided to KBRA, investment losses that materially erode capital, sustained lack of credited rates discipline, execution risks that unfavorably impact capital or earnings, and departure of key members of the management team without a suitable replacement.
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