KBRA Publishes Rating on Prosperity Group Holdings, LP

KBRA publishes its Issuer rating of BBB- for Prosperity Group Holdings, LP (PGH), a holding company that owns Prosperity Life Assurance Limited, Shenandoah Life Insurance Company, SBLI USA Life Insurance Company, Inc., S.USA Life Insurance Company, Inc., National Western Life Insurance Company, and Ozark National Insurance company on which KBRA has insurance financial strength ratings (IFSR) of A- with a Stable Outlook. Based on KBRA’s assessment of structural subordination, regulatory restrictions, financial flexibility, and external support, the issuer rating on PGH reflects a three notch differential from the operating company IFSRs. On January 5, 2022, KBRA assigned an Issuer rating of BBB- with a Stable Outlook to PGH on an unpublished basis. On June 21, 2024, KBRA affirmed PGH's Issuer rating of BBB- with a Stable Outlook on an unpublished basis.

Prosperity’s IFSRs are based on solid capitalization, an experienced and credentialed executive management team, and the continued support of a committed investor. Additionally, Prosperity has developed a credible position in middle-market M&A/reinsurance and has a presence in the bank/broker dealer channel for fixed annuities. NWL’s independent distribution channels are complementary to Prosperity’s distribution channels. Prosperity continues to further develop its retail franchise and enhance its operating platform. Prosperity benefits from relatively stable liabilities, including a mature closed block and an annuity portfolio that is predominately fixed, indexed, and immediate, with no living benefit riders or secondary guarantees.

Balancing these strengths are factors including execution risk related to continued organizational build out, ongoing systems and risk management investments, rapid growth and the integration of recently acquired National Western Life Group (NWL). KBRA views the company’s enterprise risk management (ERM) as appropriate for its current stage of development and, while acknowledging material enhancements to-date, believes that ERM needs to continue to mature to keep pace with the company’s ongoing transformation and growth. New business strain, growth-related expenses, and lack of scale have been constraints on profitability but are nearing inflection points. According to management, the acquisition of NWL brought Prosperity to scale ahead of its targeted timeframe. Completing platform enhancement initiatives during 2024 is a priority and management expects capital needs for planned organic growth will become self-funding in the near term. Prosperity’s targeted organic and inorganic markets are competitive.

Factors that could positively impact the rating include development of earnings and profitability materially ahead of plan while maintaining strong capitalization, sustained balance in business mix profile, evidenced in product reserves and earnings as well as in geographic mix of premiums, solidified market position in M&A/Reinsurance, enhanced market position in its targeted organic markets, development of material financial resources available to the holding company beyond additional borrowings or investor capital contributions, and development of material, sustained increases in risk-based capital. Factors that could negatively impact the rating include strategic plan execution that materially lags expected milestones, lack of continued ERM maturation consistent with Prosperity’s growth and transformation, inability to outrun new business strain, resulting in profitability materially behind plan, material inability to secure additional investor capital contributions, lack of development of financial resources available to the holding company beyond additional borrowings or investor capital contributions, and lack of pricing discipline in M&A/reinsurance.

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