KBRA Affirms Ratings for Penn Mutual
3 Nov 2023 | New York
KBRA affirms the AA Insurance Financial Strength Ratings (IFSR) of the Penn Mutual Life Insurance Company (PML) and its subsidiaries, The Penn Insurance and Annuity Company, Penn Insurance and Annuity of NY, and Vantis Life Insurance Company. KBRA also affirmed the A+ rating on PML’s surplus notes due 2061. The Outlook for all ratings is Stable.
The ratings reflect the company’s execution of its commitment to mutuality, a conservative yet productive investment portfolio, a very strong capital base relative to its risks, a very strong liquidity profile, highly productive distribution channels and differentiated technology that KBRA believes supports its market relevance and competitiveness. Penn Mutual’s key distribution channels include 1847Financial (formerly known as Career Agency System), Independent Financial Network, and Strategic Alliances. Its target market is affluent individuals, professionals, and owners of small-to-medium sized businesses. Penn Mutual offers a comprehensive suite of life insurance products and over the years its product mix has become increasingly balanced and lower risk. During 2022, whole life represented almost 54% of Penn Mutual's total sales, up from 10% in 2010. KBRA generally views participating whole life policies as exhibiting a more favorable risk/return profile relative to other life products. Balancing these strengths are abating but still present challenges to profitability including pressures related to product interest margins and new business strain, as well as the highly competitive sector for affluent-market financial services and products. Given its increasing market share in targeted products, KBRA views Penn Mutual as handling the competition well. Product interest margins had been declining for years but are now higher and more stable as the interest rate and market environment has changed. A challenge to statutory profitability is new business strain and the self-funding of a significant portion of reserves related to its ULSG product. Surplus note leverage was 34% at mid-year 2023, largely unchanged from a year earlier and significantly higher than recent historical levels. KBRA believes that the quality of Penn Mutual’s capital base is currently somewhat constrained by the current balance of surplus notes, although annual interest expense on all extant surplus notes is approximately $48 million which represents a relatively low claim on the company’s ample cash resources.
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