CMFG Life Insurance Company -- Moody’s affirms TruStage’s Baa2 issuer rating; outlook stable
Rating Action:
Moody’s affirms TruStage’s Baa2 issuer rating; outlook
stable
9 March 2021
New York, March 9, 2021 – Moody's Investors Service (”Moody's”) has affirmed the Baa2 issuer
rating of TruStage Financial Group, Inc. (TruStage) and the A2 insurance financial strength (IFS)
ratings of TruStage's life insurance operations (the Life Group), which is led by CMFG Life Insurance
Company (CMFG Life). In the same action, Moody's has affirmed the A2 IFS rating of CUMIS
Insurance Society, Inc. (CUMIS), TruStage's lead property and casualty insurer. The rating outlook
for these companies is stable. Please refer to the complete list of rating actions below.
The rating action follows the company’s announcement that it is acquiring the global preneed
and final expense insurance businesses from Assurant, Inc. for approximately $1.3 billion. The
transaction is expected to close in the third quarter of 2021 following regulatory approvals.
RATINGS RATIONALE
Life Operations
While TruStage is acquiring a leading preneed and final expense business, Moody’s views the
pending transaction as a modest credit negative for TruStage because of the integration risks
associated transaction, which is sizeable for the company, the anticipated high levels of goodwill
and intangibles, which could pressure asset quality metrics, and the increase in financial leverage.
Proforma financial leverage is expected to be in the high-20s% range; however, earnings coverage
will remain robust at over 8x.
Moody's stated that the A2 IFS rating affirmation of CMFG Life and MEMBERS Life Insurance
Company reflect the group's leading position as a provider of insurance and financial services to US
credit unions, their employees and members as well as its diversified distribution channels including
a proprietary platform. In addition, the ratings are supported by a solid financial profile including
the strong capitalization of its lead life insurer CMFG Life (494% NAIC company action level (CAL)
Risk Based Capital (RBC) ratio at year-end 2020), moderate financial leverage and strong coverage
metrics, and consistent earnings generation. The rating agency added that the company's risk profile
benefits from stable blocks of individual life and group insurance.
Credit challenges for the life operations include exposure to potential fee volatility from variable
annuities, spread compression from fixed annuities with guaranteed interest rates, and profitability
pressures from its legacy long-term care business. Additional factors constraining the credit profile
include a relatively modest position in the context of the broader US life insurance sector (though
the company is a leader in credit life and disability by premium), and a relatively high expense ratio.
The stable outlook for the ratings reflects its leading market position within credit unions, strong
capitalization, and diversified distribution channels.
Property and Casualty (P&C) Operations
According to Moody's, the affirmation of CUMIS' A2 IFS rating is based on its long-standing position
as a leading provider of P&C insurance to credit unions and their members as part of TruStage,
good geographic diversification with manageable catastrophe exposure, a high quality investment
portfolio, good profitability and implicit support from its indirect parent CMFG Life.
These strengths are tempered by CUMIS’ modest market position in US personal and commercial
lines and relatively high concentrations in selected commercial lines products including fidelity,
professional liability and debt protection given its focus on credit unions and its members. CUMIS
provides personal lines insurance in partnership with Liberty Mutual, and a potential change or
termination of this relationship would disrupt CUMIS’ business profile and profitability. In 2018,
CUMIS renewed its five-year contract with Liberty Mutual.
The company has performed well through the coronavirus-related economic downturn. For CUMIS
and other insurers, the coronavirus and related economic downturn has caused lower premiums in
certain lines and more volatile investment results, offset by declines in claims for business such as
personal and commercial auto insurance.
Holding Company
Moody's said the Baa2 issuer rating for holding company, TruStage, is the standard three notches
below the A2 IFS operating company ratings, reflecting the structural subordination of holding
company creditors to policyholders and the dominance of the life operations relative to the P&C
operations. In addition, the benefits of diversification from the life and P&C operations is offset by the
shared exposure to the financial health of a single large market segment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Life Operations
The following factors could lead to an upgrade of the Life Group's rating: (i) return on capital (ROC)
consistently above 8%, (ii) lower expense ratios on a sustained basis, (iii) profitable expansion
beyond the credit union market, and (iv) adjusted financial leverage consistently below 15%.
Conversely, the following factors could lead to a downgrade of the Life Group's ratings: (i) CMFG Life
consolidated NAIC CAL RBC ratio below 400%, (ii) ROC falling below 4%, or (iii) adjusted financial
leverage exceeding 30%.
P&C Operations
The following factors could lead to an upgrade of CUMIS' ratings: (i) increased scale and profitable
growth (P&C combined ratios at or below 95%), (ii) ROC across the cycle above 8%, (iii) adjusted
financial leverage consistently below 15%, and (iv) an upgrade of the ratings of CUMIS' indirect
parent, CMFG Life.
The following factors could lead to a rating downgrade for CUMIS: (i) ROC sustained below 4%, (ii)
disruption in personal lines partnership with Liberty Mutual or sustained decline in in-force business,
(iii) adverse development in loss reserves (exceeding 5% of carried reserves), (iv) adjusted financial
leverage exceeding 30%, or (v) a downgrade of CMFG Life's ratings.
Holding Company
According to Moody's, the following factors could lead to an upgrade of TruStage's rating: (i) upgrade
of the ratings of the US life insurance operations, (ii) return on capital (ROC) consistently above
8%, (iii) lower expense ratios on a sustained basis, (iv) profitable expansion beyond the credit union
market, and (v) adjusted financial leverage consistently below 15%. Conversely, the following factors
could lead to a downgrade of TruStage's ratings: (i) downgrade of the ratings of the US life insurance
operations, (ii) CMFG Life consolidated NAIC CAL RBC ratio below 400%, (iii) ROC falling below
4%, or (iv) adjusted financial leverage exceeding 30%.
The following ratings have been affirmed:
CMFG Life Insurance Company - insurance financial strength rating at A2;
MEMBERS Life Insurance Company - insurance financial strength rating at A2;
CUMIS Insurance Society, Inc. - insurance financial strength rating at A2;
TruStage Financial Group, Inc. - issuer rating at Baa2.
The rating outlook for the companies remain stable.
TruStage is a Wisconsin-based company that sells insurance, protection, and lending solutions for
credit unions, employees and members. As of June 30, 2020, TruStage reported consolidated total
assets of approximately $26 billion and policyholder surplus of approximately $4.3 billion.
The principal methodologies used in rating TruStage Financial Group, Inc. were Life Insurers
Methodology published in November 2019 and available at
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_1187348
, and Property and Casualty
Insurers Methodology published in November 2019 and available at
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_1187352
. The principal methodology used
in rating CMFG Life Insurance Company and MEMBERS Life Insurance Company was Life
Insurers Methodology published in November 2019 and available at
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_1187348
. The principal methodology used in
rating CUMIS Insurance Society, Inc. was Property and Casualty Insurers Methodology published
in November 2019 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1187352
. Alternatively, please see the Rating Methodologies page on
www.moodys.com for a copy of these methodologies.
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researchdocumentcontentpage.aspx?docid=PBC_79004
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The person who approved TruStage Financial Group, Inc., CMFG Life Insurance Company, and
MEMBERS Life Insurance Company credit ratings is Scott Robinson, CFA, Associate Managing
Director, Financial Institutions Group, JOURNALISTS : 1 212 553 0376 , Client Service : 1 212
553 1653. The person who approved CUMIS Insurance Society, Inc. credit ratings is Sarah Hibler,
Associate Managing Director, Financial Institutions Group, JOURNALISTS: 1 212 553 0376 , Client
Service: 1 212 553 1653 .
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Shachar Gonen, CFA
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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