Positive Outlook Rating Assigned to 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

KBRA Assigns Ratings to Penn Mutual and Janney Montgomery Scott

NEW YORK, NY (January 31, 2019) – Kroll Bond Rating Agency (KBRA) assigns insurance financial strength ratings (IFSR) of AA- to 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 assigns an issuer rating of A to Penn Mutual’s broker-dealer subsidiary Janney Montgomery Scott LLC (Janney). The Outlook for all ratings is Positive.

The ratings reflect Penn Mutual’s unwavering commitment to mutuality and its concomitant strategy of maintaining long-term financial strength. Management is focused on maintaining capital strength and strong liquidity, while profitably growing the business in a balanced, diversified manner. 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 conservative investment portfolio with sound returns; and investments in technology that should support its competitive relevance into the future. Penn Mutual’s balanced mix of life insurance and annuities—supplemented by Janney and its growing asset management business—produces a consistent stream of earnings, supporting two decades of consistent and top-tier dividend history. Although asset management and broker-dealer earnings are influenced by market-related variables, KBRA expects that, over time, non-insurance earnings will continue to contribute to enhanced earnings diversification. Along with steady earnings, Penn Mutual has managed its capital base to preserve a strong risk-adjusted capital ratio and a surplus/liabilities ratio that is well-above industry norms. Over the last several years, the company has focused on life insurance sales and has increased its industry ranking to 13, up from 24 in 2010, by launching new and refreshed products, optimizing distribution, and implementing cutting-edge technology to drive the sales process. Additionally, Penn Mutual expanded its overall market presence through its 2016 acquisition of Vantis, which sells to the middle-market through direct-to-consumer and bank distribution channels. This contrasts to Penn Mutual’s affluent target market and advisor-led distribution channels.

Balancing these strengths is a 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 strong financial resources, marketing and 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 lower-for-longer interest rate environment. Penn Mutual’s interest margins have been trending down over the last several years; this compression is exacerbated by lower lapse experience relative to pricing assumptions. 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 strategic importance to Penn Mutual. With its focus on wealth management, Janney has a more stable and lower-risk business model compared with major broker-dealers. KBRA notes that Janney has remained profitable through the financial crisis and its aftermath. Janney is regionally concentrated but operates in a diversified economy and continues to expand selectively in attractive markets. KBRA believes that Janney is strategically important to Penn Mutual, which has owned the firm since 1982, and that Penn Mutual would support Janney in the unlikely event of need.

The Positive Outlook on Penn Mutual’s ratings reflects KBRA’s expectation that the organization will continue to maintain strong capitalization and liquidity, grow its book of business while managing mix shifts to support ample profitability, preserve the investment portfolio’s high credit quality and solid returns, and be run by a thoughtful management team with a conservative, risk-focused approach that supports long-term financial strength. More specifically, KBRA expects to see stabilization in the pace of spread compression, continued success with the Vantis acquisition, strong profitability metrics, and sustained strong risk-adjusted capital position relative to industry norms. If these trends continue, rating upgrades in the medium term are likely.

The ratings are based on KBRA’s Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017, and on KBRA’s Securities Firm Global Rating Methodology published on March 8, 2018.

A full report will soon be available on www.kbra.com.

Analytical Contacts:

Donna Halverstadt, Managing Director, Insurance
(646) 731-3352

Andrew Edelsberg, Managing Director, Insurance
(646) 731-2371

Joe Scott, Managing Director, Financial Institutions
(646) 731-2438

Robert Hill, CFA, Associate, Insurance
(646) 731-3383

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, is 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.