Kroll Bond Rating Agency (KBRA) assigns an insurance financial strength rating (IFSR) of A- with a Stable Outlook to The Baltimore Life Insurance Company (Baltimore Life). In addition, KBRA assigns an issuer rating of BBB- to Baltimore Life’s direct holding company, Baltimore Financial Group, Inc. Baltimore Life is a provider of individual life insurance and retirement products to America’s middle-income and lower-middle income segments. Headquartered in Owings Mills, Maryland, the insurer operates in 49 states and Washington, DC.
The ratings reflect Baltimore Life’s consistent operating profitability, solid balance sheet, diversified distribution, and balanced reserve mix emphasizing lower-risk products. The company has generally reported favorable earnings over the last decade with ordinary life insurance and individual annuities driving statutory profitability in a fairly balanced manner. BLIC has no financial leverage, utilizes reinsurance prudently, and holds full no-lapse UL reserves. KBRA notes that the company’s risk-based capital (RBC) ratio is sound, despite being lower than industry levels. Baltimore Life’s invested asset portfolio is externally managed, consists primarily of fixed income instruments, and has generally outperformed industry averages from a net investment yield perspective. BLIC utilizes both a career agency system as well as independent marketing organizations to reach its target middle income market. KBRA notes that Baltimore Life is a member of the Federal Home Loan Bank of Atlanta, which it utilizes for back-up liquidity. Finally, KBRA believes the organization’s mutual holding company (MHC) structure has added flexibility – compared to a pure mutual – with greater access to the capital markets through the intermediate holding company and an enhanced ability to acquire insurers via sponsored demutualization or MHC merger.
Offsetting these credit strengths are the company’s exposure to reinvestment risk and spread compression; recent allocations to higher-risk, less-liquid assets; and strong competition in its key product lines. KBRA believes that above-average portfolio yields are likely to decline due to lower new money rates. Hence, it is likely that Baltimore Life – along with the rest of the industry – will be challenged to maintain healthy spreads without compromising credit quality, potentially mismatching the durations of its assets and liabilities, or lowering credited rates closer to guaranteed minimums. Although BLIC’s investment approach is generally conservative, over the last few years KBRA notes material investments in less-liquid funds holding mortgages, REITs, and other "alternative" investments. Baltimore Life’s key product lines are ordinary life, fixed annuities, final expense, and group insurance. There is substantial competition from established insurers in all of these markets and BLIC lacks a firm market position across its product lines and geographies. Finally, KBRA believes the company’s ERM program is appropriate for its risk profile although the framework is still evolving to integrate risk management processes more fully into the company’s decision-making. KBRA also notes the need for additional resources as well as development of middle management bench strength to provide for future leadership, which is common for companies of Baltimore Life’s size.
Due to its conservative investment posture, the impact of COVID-19 on Baltimore Life’s investment portfolio has been manageable. In addition, the company has maintained operations during the pandemic with minimal disruption. KBRA continues to monitor the direct and indirect impacts of COVID-19 on the insurance sector. Please click here for more detail on KBRA’s research on the continuing impact of COVID-19.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. 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) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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