KBRA Downgrades and Subsequently Withdraws Rating for Gleaner Life Insurance Society
7 Aug 2024 | New York
KBRA downgrades the Insurance Financial Strength Rating (IFSR) for Gleaner Life Insurance Society ("Gleaner") to BBB+ from A-. The Outlook has been revised to Developing from Stable. Subsequently, KBRA withdraws the IFSR for Gleaner Life Insurance Society at the request of the company.
The downgrade reflects the further deterioration of financial results which has unfavorably impacted capital and surplus, significant lapses in enterprise risk management (ERM) and corporate governance, resulting in the recent turnover in senior leadership and several board members and challenges in areas of financial reporting and planning, and a moderate shift in product strategy which may strain financial results over the near term. A path towards favorable, sustained earnings may take additional time to develop, though the company’s balance sheet remains conservative. In addition, the company is exposed to significant execution risk as it seeks to update, document, and implement a new corporate governance framework.
The change in Outlook to Developing from Stable reflects operational shortfalls which contributed to delays in the filing of, and restatement of, certain financial statements as well as the potential for further pressure on capital and surplus. The Developing Outlook further incorporates significant uncertainty over the medium term with respect to the company’s execution of plans to address weaknesses in enterprise risk management, governance challenges and management turnover.
Key Credit Considerations
The rating reflects Gleaner’s conservative balance sheet, historically disciplined product pricing and crediting rate practices, and diverse asset portfolio. Risk-based capital over the longer term has historically trended up and in line with peers, significantly strengthened by two reinsurance transactions for annuity blocks, though has trended down over the last three consecutive years. Invested assets are diversified by sector but the risk profile has been modestly increasing as Gleaner seeks higher investment yields.
Balancing these strengths are corporate governance and ERM challenges, execution risk related to the implementation of governance updates, exposure to interest sensitive business, and near-term profitability and surplus strains. While Gleaner's board of directors as well as senior management will be focused on the modernization of corporate governance and the enhancement of ERM across the organization over the next six to twelve months, Gleaner faces execution risk on the implementation as such initiatives require the formal acceptance by membership/delegates. Given the refocus towards life products as well as certain deferred annuities, targeted growth may strain surplus and challenge near term profitability.
Rating Sensitivities
As the rating has been withdrawn, there are no rating sensitivities.
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