KBRA Affirms Rating for NSS Life, Revises Outlook to Positive from Stable

KBRA affirms the BBB+ Insurance Financial Strength Rating for National Slovak Society of the United States of America ("NSS Life" or "the Society"). The Outlook has been revised to Positive from Stable.

The Outlook revision to Positive from Stable reflects the favorable long-term growth trends in earnings, capital growth, and strategic execution. Consistent profitability trends over the long term are underpinned by annuity spread management, above-benchmark investment yields, and effective crediting rate adjustments largely mitigating disintermediation risks. New money and reinvestment rates have strengthened without compromising asset credit quality, allowing for competitive crediting and bonus rates while maintaining surplus growth..

Despite recent marginal operating performance, stemming from strategic actions to counter elevated surrenders, NSS Life maintains a solid balance sheet and increasing membership base, in contrast to most fraternal benchmarks. KBRA views favorably the continued maturation in enterprise risk management and corporate governance, as well as targeted experienced hires to supplement the small but experienced executive leadership team.

The rating reflects NSS Life's relatively stable operating profitability, favorable capital trends, and effective strategic execution amid a challenging market environment. The Society continues to demonstrate operating profitability, supported by relatively stable annuity spread management, above-benchmark investment yields, and disciplined crediting rate strategies, which have largely mitigated disintermediation risks. In line with its prudent asset-liability strategy, NSS Life has not sold assets to fund annuity surrenders or withdrawals over the last two years. New money and reinvestment rates have generally strengthened, allowing NSS Life to maintain competitive crediting and bonus rates while preserving asset quality and surplus growth. NSS Life’s investment performance remains favorable, with a well-diversified, high-quality asset portfolio, where 98% of fixed-income holdings are investment-grade. Membership growth remains robust, with year-over-year expansion of approximately 10%, generally countering broader fraternal industry declines. The Society’s capital position continues to improve, with total adjusted capital (TAC) growing at a 10% compound annual growth rate (CAGR) over five years, though nominal capital and risk-based capital (RBC) ratios remain below fraternal and industry benchmarks. RBC has ranged between 267% and 304% over the past five years, now aligning favorably with NSS Life’s long-term target of 300%.

Balancing these strengths, NSS Life continues to face spread compression pressures and exposure to disintermediation risk, though the higher rate environment and proactive asset-liability management strategies are expected to help stabilize earned spreads over time. The Society’s ERM framework continues to mature, strengthening risk oversight and governance. However, execution risks remain, as NSS Life implements its strategic plan, expands its geographic reach, and modernizes its operations. The Society’s business mix and geographic footprint remain concentrated, with interest-sensitive annuities comprising the majority of earnings and two-thirds of premium revenue originating from Pennsylvania. NSS Life’s strategic initiatives include geographic expansion and efforts to increase life insurance sales, aimed at enhancing product diversification over the long term.

Factors that could positively impact the rating include sustained earnings and continued favorable capital trends which exceed management target, continued demonstrated robust growth comparable to historical levels, demonstrated enterprise risk management process maturation across the organization, elimination or material reduction of the risk of spread compression and disintermediation, or a favorable change in risk profile, including material improvement in reserve and business mix.

Factors that could negatively impact the rating include a material adverse change in risk profile, decline in or failure to consistently achieve risk-based capital position in line with management target, substantial decline in earnings or material investment losses, substantial uncontrolled growth or lack of credit rates discipline with outsized pressure on earnings and capital growth trends, or departure of key members of the management team without adequate succession plan.

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