KBRA Upgrades Ratings of Penn Mutual and Janney Montgomery Scott

NEW YORK--()--Kroll Bond Rating Agency (KBRA) upgrades the insurance financial strength ratings (IFSR) to AA from AA- of The Penn Mutual Life Insurance Company and its key insurance subsidiaries: The Penn Insurance and Annuity Company, Vantis Life Insurance Company, and Vantis Life Insurance Company of New York (collectively referred to as Penn Mutual). KBRA also upgrades to A+ from A the issuer rating of Penn Mutual’s broker-dealer subsidiary Janney Montgomery Scott LLC (Janney). The Outlook for all ratings is Stable.

The ratings upgrades reflect sustained favorable trends in operating performance that stem from management’s consistent execution of its business plan. Favorable trends include the emergence over recent years of step-ups in each of the level of GAAP earnings, earnings diversification and statutory net gain/loss from operations. KBRA views positively Penn Mutual’s consistent application of its ERM program, which has resulted in continuous refinements to its risk practices as well as risk-based decisions on action items. The ratings also reflect the organization’s unwavering commitment to mutuality, which informs its strategy of maintaining capital strength and sound liquidity, along with a conservative and well-performing investment portfolio. Accompanying these strengths are an experienced and proactive management team which actively engages in deep, broad risk management; a flexible approach to distribution that is a competitive advantage; a broad, comprehensive life insurance product portfolio with an increasing emphasis on participating whole life; a strong market position in its affluent target market; and investments in technology that should support its competitive relevance into the future.

Balancing these strengths is the highly competitive market for affluent-market financial services and products, continued spread compression within its interest-sensitive products, and challenges to statutory profitability related to new business strain. Penn Mutual’s affluent target market is highly sought after by global life insurers as well as mutual fund companies, banks and investment management firms. Continued consolidation has resulted in larger competitors with substantial financial resources, marketing & distribution capabilities, and brand identities. KBRA believes that Penn Mutual is managing competitive challenges well, as evidenced by its increasing life insurance market share while maintaining capital strength and solid earnings. Another challenge the company faces—along with other life insurers with interest-sensitive liabilities—is the low interest rate environment. Penn Mutual’s product interest margins have been trending down. The company has actively managed this risk by lowering credited rates, shifting sales toward whole life products, and disciplined expense management. Additionally, KBRA notes that about 20% of Penn Mutual’s statutory capital base is surplus notes, which is higher than some of its mutual peers.

Janney’s ratings are supported by an experienced management team, long history of profitable operations, conservative risk appetite, low-risk business mix and 100% ownership by Penn Mutual since 1982. KBRA believes that Janney is strategically important to the enterprise and that Penn Mutual would support Janney in the unlikely event of need. The Outlook is Stable, in line with Penn Mutual’s outlook.

The Stable Outlook on Penn Mutual reflects KBRA’s expectation that the insurer’s strategic positioning will continue to include a commitment to mutuality, a leadership position in life insurance, and a focus on risk management as a core competency. The outlook also incorporates the expectations that Penn Mutual will continue to maintain strong capitalization and liquidity, grow its book of business while managing mix shifts to support enhanced profitability, maintain the investment portfolio’s high credit quality and strong returns, and continue to be run by a thoughtful management team with a conservative approach to managing the business in a way that continues to support financial strength over the long-term.

A report will be forthcoming.

Related Publications: (available at www.kbra.com)

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Donna Halverstadt, Managing Director, Insurance
(646) 731-3352
dhalverstadt@kbra.com

Andrew Edelsberg, Managing Director, Insurance
(646) 731-2371
aedelsberg@kbra.com

Joe Scott, Managing Director, Financial Institutions
(646) 731-2438
jscott@kbra.com

Business Development Contact:

Tina Bukow, Managing Director
(646) 731-2368
tbukow@kbra.com

Contacts

Analytical Contacts:

Donna Halverstadt, Managing Director, Insurance
(646) 731-3352
dhalverstadt@kbra.com

Andrew Edelsberg, Managing Director, Insurance
(646) 731-2371
aedelsberg@kbra.com

Joe Scott, Managing Director, Financial Institutions
(646) 731-2438
jscott@kbra.com

Business Development Contact:

Tina Bukow, Managing Director
(646) 731-2368
tbukow@kbra.com