KBRA Releases Surveillance Report for CL Life and Crestline Assurance Holdings

On August 24, 2023, KBRA affirmed the the A- insurance financial strength rating (IFSR) of CL Life and Annuity Insurance Company (CL Life) and the BBB- issuer rating of CL Life's insurance holding company, Crestline Assurance Holdings, LLC (Crestline Assurance Holdings). The Outlook for both ratings is Stable. CL Life is a fixed annuity writer domiciled in the State of Utah and an affiliate of Crestline Management, L.P. (Crestline), an institutional alternative asset manager.

The ratings reflect CL Life's sound risk-based capitalization, strong capital support from Crestline, experienced management team, sound asset liability management (ALM) framework, adequate enterprise risk management, and minimal exposure to disintermediation risk. As of June 30, 2023, CL Life reported $8.0 million in capital and surplus (C&S) and $98.5 million in liabilities. Eighty-one percent of assets were held in cash and cash equivalents. As the company executes its business plan, KBRA expects C&S to decrease as initial sales are made but also expects risk-based capitalization to remain strong over the medium term. Inclusive of the acquisition and launch, Crestline has invested nearly $11 million and has also executed a contribution commitment agreement to fund business growth over the medium term. KBRA believes that Crestline is strongly committed to CL Life's success. CL Life has a seasoned management team with extensive knowledge of direct annuity products as well as extensive experience in other complementary areas of financial services. CL Life has built a comprehensive ALM framework that provides robust modeling of various interest rate and credit risk scenarios to evaluate and ensure adequate liquidity to meet policyholder liabilities when due. In addition, CL Life’s investment strategy incorporates an allocation to liquid fixed income securities. KBRA believes that CL Life has an appropriate enterprise risk management framework for the company’s size and complexity, with a clear focus on interest rate, cyber security, and model risk. As a byproduct of a new market entrant with no legacy liabilities, minimal exposure to disintermediation risk is a credit strength.

Balancing these strengths are CL Life’s limited earnings diversification, exposure to spread compression, execution risk, key person risk and nascent position within a competitive marketplace. CL Life’s earnings are derived from investment income and ceding commissions on fixed annuities, primarily in midwestern, southeastern and southwestern states. As the company generates income from the difference between investment earnings and annuity crediting rates over time, CL Life is vulnerable to fluctuating interest rates and shifting credit spreads which will expose its results to potential volatility from spread compression. As a recent entrant in the highly competitive direct annuity market, CL Life may be challenged in executing its business plan. The company operates with a lean staff, leveraging Crestline resources as well as external advisors.

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