NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns an insurance financial strength rating of A- to Independent Life Insurance Company (Independent Life), a newly launched Texas-domiciled life insurer with a sole focus on the structured settlement market. Independent Life is the underwriter within the Independent Insurance Group, which was formed as a collaboration between management and LKCM Headwater Investments, the private investment arm of Luther King Capital Management, a Fort Worth-based investment firm. The Outlook assigned is Stable.
The rating reflects Independent Life’s sound initial capitalization, which KBRA believes is sufficient to support the company’s reasonable growth strategy, and management’s extensive experience in the structured settlement annuity (SSA) industry. The company has access to additional committed capital to meet KBRA’s expectations of an appropriate level of risk-adjusted capital, given its start-up nature and business plans. Independent Life plans to opportunistically enter a market where several legacy SSA providers have recently exited. These exits were driven by compressed margins on inforce policies priced assuming continued availability of high-yielding assets as well as the desire of these firms to divest non-core operations. Independent Life will leverage broad and deep relationships, along with opportunistic competitive pricing, to become a preferred provider of the structured settlement distribution force. The company will benefit from a clean balance sheet and financial flexibility in operating a spread-based business in a favorable pricing environment. Finally, KBRA recognizes the management team’s broad experience in pricing and managing SSA liabilities, its prudent asset allocation strategy, legal expertise, and conservative approach to underwriting impaired risks.
Balancing these strengths is the start-up nature of the company and the execution risk for Independent Life’s management team as it competes with larger, diversified competitors with substantial capital bases and recognized franchises. Independent Life will have a monoline product focus and annuity terms are fixed at issue with no ability to adjust crediting rates. Additionally, as pricing is fixed at issue, reinvestment risk is the company’s most significant exposure as investment yields over the long-term are difficult to predict. KBRA recognizes that Independent Life’s major risks – reinvestment and pricing risk – are largely mitigated by entering the market when interest rates are low. Moreover, the company has the ability to control premium flow if margins become unattractive. KBRA notes that there is the potential for losses in a declining interest rate environment or if credit defaults spike. Finally, key man risk exists in that Independent Life needs to continue to build out its management team over time to develop bench strength for succession planning.
The Stable Outlook reflects KBRA’s expectation that Independent Life will execute its business plans in a manner consistent with the business plans presented to KBRA, maintain sound capitalization, grow its SSA business in a prudent and profitable manner, maintain the investment portfolio’s high credit quality, retain key members of its management team, and preserve financial flexibility through conservative financial metrics.
The ratings are based on KBRA’s Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.
A detailed rating report for Independent Life will soon be available on www.kbra.com.
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