KBRA Affirms Ratings for Penn Mutual

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.

Penn Mutual’s ratings reflect the company’s execution of its commitment to mutuality, a conservative yet productive investment portfolio, a very strong capital base and liquidity profile relative to its risks, highly productive distribution channels and differentiated technology that KBRA believes supports its market relevance and competitiveness. Penn Mutual’s key distribution channels include 1847 Financial (its rebranded Career Agency System), Independence 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 time its product mix has become increasingly balanced and lower risk. During 2023, Penn Mutual’s whole life sales represented almost 54% of 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 the highly competitive sector for affluent-market financial services and products and the challenge to statutory profitability of new business strain, including the self-funding of a significant portion of reserves related to its ULSG product. Given its increasing market share in targeted products, KBRA views Penn Mutual as managing competition well. Since the previously long-running profitability headwinds related to interest rates have eased, product interest margins have stabilized. Elevated but manageable surplus note leverage continues to improve, which was 30% at mid-year 2024 and is expected to decline significantly in the near-term. Annual interest expense on all extant surplus notes represents a relatively low claim on the company’s ample cash resources.

Factors that could positively impact the rating include heightened growth and stability in earnings and profitability metrics while maintaining strength in capital and liquidity, and additional earnings diversification by business line without compromising profitability or risk management controls.

Factors that could negatively impact the rating include a material change in risk appetite, significant declines in earnings and profitability, notable declines in capitalization, and for any particular subsidiary, material weakening of Penn Mutual’s capital support, RBC targets, or strategic or financial commitment.

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