KBRA Affirms Rating for United Heritage Life Insurance Company

KBRA affirms the A- insurance financial strength rating (IFSR) of United Heritage Life Insurance Company (UHLIC) with a Stable Outlook.

UHLIC’s rating reflects KBRA’s expectation that UHLIC will return to its target risk-adjusted capitalization in the medium term and sustain strong earnings. The rating also reflects UHLIC’s balanced reserve mix and low-risk product profile. As of YE2024, capital and surplus reached an historical high of $82.2 million. Prior to the YE2022 drop in its CAL RBC ratio, UHLIC’s ratio exceeded the industry average for much of the past decade. UHLIC’s steady growth in total adjusted capital historically was driven by a balanced mix of consistent earnings until recent years, when earnings were pressured (2018-2022) and annuities became an increasingly large portion of earnings. However, beginning in 2023, net gains from operations rebounded and life and accident and health contributed a larger portion of earnings than it had the prior year. UHLIC’s investment yields have outperformed relative to industry benchmarks and UHLIC historically has achieved robust (albeit declining) annuity spreads that are currently healthy. UHLIC is maintaining pricing discipline and has lowered production in response to significant competition in order to maintain, if not achieve better, spreads. KBRA believes the company maintains a low-risk product portfolio, selling basic products such as whole life, pre-need, final expense, fixed annuities, and group life.

Balancing these strengths are factors that include that during the period of lower-for-longer interest rates, UHLIC’s historically high portfolio yields declined due to lower new money rates, and its spread narrowed from approximately 290 bps in the beginning of 2018 to 140 bps at YE2024. Despite improvement in recent years, UHLIC’s investment portfolio relative to the life insurance industry maintains less conservative asset allocations including a higher allocation to corporates and a higher allocation to triple B rated bonds. At YE2024, approximately 66% of its investment grade bond portfolio was in the BBB category compared to 71% at YE2023. While UHLIC has historically benefited from United Heritage Financial Group’s shared services including employee benefits, investment management, human resources management, information technology, enterprise risk management and legal/regulatory, the organization – including UHLIC – is in the process of significantly reducing expenses due to the P/C business being in runoff. In addition, UHLIC is subject to substantial competition from established insurers with strong franchises and broad distribution relationships. KBRA believes that the company’s enterprise risk management capabilities are sufficient for its risk profile and have evolved over time.

Factors that could positively impact the rating include improved risk-adjusted capitalization above historical levels, sustained favorable earnings trends from multiple product lines, increased, sustained diversification of revenue and earnings, and sustained improvement in investment risk profile.

Factors that could negatively impact the rating include failure to restore risk-based capitalization to long term target over the medium term, negative change in the company’s risk profile, unfavorable trends in profitability and/or diversification of sources of earnings, and loss of key business partners or distribution sources.

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