On August 23, 2022, KBRA assigned an A- Insurance Financial Strength Rating (IFSR) to CL Life and Annuity Insurance Company (CL Life) and a BBB- Issuer Rating to CL Life’s insurance holding company, Crestline Assurance Holdings, LLC Crestline Assurance Holdings. The Outlook for both ratings is Stable. CL Life is a fixed annuity writer and an affiliated of Crestline Management, L.P. (Crestline), an institutional alternative asset manager.
The ratings reflect CL Life’s sound risk-based capitalization, strong capital support from Crestline, experienced management team, sound asset liability management (ALM) framework and adequate enterprise risk management. As of June 30, 2022, CL Life reported $9.6 million in capital and surplus (C&S) and $0.5 million in liabilities. Ninety-six percent of assets were held in cash and cash equivalents. With the launch of the company on August 15, 2022, KBRA expects C&S to decrease as initial sales are made but also expects risk-based capitalization to remain sound over the medium term. Crestline has already invested nearly $11 million to acquire and launch CL Life and has also executed a contribution commitment agreement to fund business growth over the medium term. KBRA believes that Crestline is strongly committed to CL Life’s success. CL Life has a seasoned management team with extensive knowledge of direct annuity products as well as extensive experience in other complementary areas of financial services. CL Life has built a comprehensive ALM framework that provides robust modeling of various interest rate and credit risk scenarios to evaluate and ensure adequate liquidity to meet policyholder liabilities when due. In addition, CL Life’s investment strategy incorporates an allocation to liquid fixed income securities. KBRA believes that CL Life has an appropriate enterprise risk management framework for the company’s size and complexity, with a clear focus on interest rate, cyber security, and model risk.
Offsetting these strengths are CL Life’s limited earnings diversification, exposure to spread compression, execution risk, key person risk and nascent position within a competitive marketplace. CL Life’s earnings are derived from investment income and ceding commissions on fixed annuities, primarily in midwestern, southeastern and southwestern states. As the company generates income from the difference between investment earnings and annuity crediting rates, CL Life is vulnerable to fluctuating interest rates and shifting credit spreads, which will expose its results to potential volatility from spread compression. As a recently repurposed insurance company with no current operating history and no brand recognition in a highly competitive direct annuity market, CL Life may be challenged in executing its business plan. The company operates with a lean staff, leveraging Crestline resources as well as external advisors.
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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 Information Disclosure Form(s) 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 Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. 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.
Carol Pierce, Senior Director (Lead Analyst)
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