KBRA Affirms Rating for Modern Woodmen of America
27 Oct 2023 | New York
KBRA affirms the AA- insurance financial strength rating (IFSR) for Modern Woodmen of America (Modern Woodmen, MWA, or the Society). The Outlook is Stable.
The rating reflects Modern Woodmen of America’s (Modern Woodmen, MWA, or the Society) strong balance sheet, steady capital growth, established membership base, experienced management team, high-quality investment portfolio, and improving reserve mix. As the third-largest fraternal benefit society in the United States, MWA is focused on distributing life insurance, annuity, and investment products through a career distribution system. The Society has reported solid, consistent profitability across its life and annuity business lines, which has resulted in steady capital growth. Modern Woodmen’s risk-adjusted capital position remains strong, supported by its high-quality balance sheet with no financial leverage. MWA’s investment portfolio is liquid, well-diversified and of generally high credit quality. Further, Modern Woodmen has a robust ERM infrastructure across the enterprise. Balancing these credit strengths are declining membership trends and above average exposure to lower investment grade bonds, though nearly three quarters of the assets in this category are BBB+/BBB which serves to mitigate vulnerability to ratings migration. Similar to other fraternals, MWA remains challenged to increase overall membership as its target market of middle-income families and small businesses overlaps with that of many commercial carriers and peers. Exposure to spread compression within its legacy annuity block has historically been a credit challenge, in KBRA’s opinion. Relatively high guaranteed crediting rates, historically low new money rates, and a decreasing trend of earned interest spreads compressed earnings and profitability. However, historical profitability headwinds related to spread compression on its interest sensitive liabilities, which was mitigated to an extent through reinsurance, have eased driven by the current higher rate environment as reinvestment yields are significantly higher.
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