KBRA Upgrades and Publishes Ratings on Nassau Financial Group, L.P. and Certain Subsidiaries

KBRA upgrades and publishes its BBB+ insurance financial strength ratings (IFSR) on Nassau Life Insurance Company (NNY), Nassau Life and Annuity Company (NLA), Nassau Life Insurance Company of Kansas (NKS), and Nassau Re (Cayman) Ltd. (NKY), which are indirect subsidiaries of Nassau Financial Group, L.P. (NFG). At the same time KBRA upgrades and publishes its BB+ issuer rating on NFG and its B+ debt rating on NFG’s Class C non-voting redeemable perpetual preferred stock. All ratings have a Positive Outlook. Ratings were initially assigned on an unpublished basis on December 14, 2020, with IFSRs of BB+ assigned to NY, NLA and NKS, and BBB- to NKY, an issuer rating of BB- assigned to NFG, and a B- debt rating assigned to its Class C preferred stock all with a Stable Outlook.

Nassau’s ratings reflect its multi-year transformation that has positioned the company to successfully execute its strategy, a holding company structure that provides capital raising and financial flexibility benefits, operational and distribution strengths, a mature profitable closed block, and robust ERM policies, procedures and practices that are subject to continuous improvement initiatives. These strengths are balanced by underlying drivers of profitability which, while strong, have been negatively impacted by some recent adverse mortality experience. Additionally, while Nassau’s statutory capital profile is solid, certain capital ratios, including CAL RBC ratios, are below industry benchmarks, with a relatively high proportion of NNY’s surplus base comprised of surplus notes. Furthermore, while the marketplace for fixed and fixed indexed annuities is large, it is also competitive and includes many players, some of which are larger, have greater resources, and benefit from well-known brand names.

Factors that could result in positive rating action include development of sustained, robust statutory profitability to support internal capital generation, improved quality of capital and statutory balance sheet metrics, further enhanced market position without materially increasing the organization’s risk profile, successful implementation of reinsurance and other risk management initiatives and, for the holding company, a larger and sustained proportion of cash flow originating from unregulated operating subsidiaries.

Factors that could result in negative rating action include a decline in risk appetite statement metrics below management threshold levels, material underperformance in the U.S. operating companies’ ability to generate consistent, robust statutory profitability, acquisitions that materially increase the risk profile of the Nassau group, sustained material deterioration in leverage and coverage ratios at NFG and, free cash flows from the asset management business which are materially below management’s projections.

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