KBRA assigns a BBB insurance financial strength rating to Universal Life Insurance Company (ULICO). The outlook for the rating is stable. ULICO is an insurance operating entity of Universal Group, Inc., a holding company offering both non-life and life insurance as well as other related services in Puerto Rico.

The rating reflects the company’s strong market presence, experienced management team and unique product capabilities offered to residents of Puerto Rico. ULICO is the largest life writer domiciled in Puerto Rico and offers other services to support customers. Its market position is driven by a well-established distribution network, which includes agents, banks and broker-dealers. ULICO has generated consistent favorable operating results over the last five years, which has led to a strong risk-adjusted capital position.

Balancing these strengths is geographic and product concentration, with ULICO focusing on business in Puerto Rico. ULICO is focused predominantly on individual annuities, notably fixed and equity indexed offerings, which generate spread income. As a result, ULICO is vulnerable to margin compression should interest rates change. ULICO also has elevated exposure to below investment grade bond holdings and other high-risk assets.

To support growth, ULICO is reliant on reinsurance and maintains contracts with a limited number of reinsurers. This leaves ULICO exposed to counterparty risk. ULICO has been involved in legal proceedings with one counterparty related to a closed block of fixed annuity business. While a resolution is expected within the next year, there is a risk that ULICO will be unable to recapture business related to this reinsurance treaty.

Factors that could positively impact the rating include consistent track record of internal capital generation that more than offsets stockholder dividends, material favorable change in risk profile, performance that materially exceeds forecasts provided to KBRA, or diversification of quality reinsurance counterparties.

Factors that could negatively impact the rating include material unfavorable change in risk profile, including a loss of market position and scale, material underperformance relative to forecasts provided to KBRA, unfavorable trends in operating profitability or a material decline in risk-adjusted capitalization as well as the inability to resolve the outstanding reinsurance counterparty dispute which could impact future earnings.

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Methodologies

• Insurance: Insurer & Insurance Holding Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

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.

About KBRA

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. 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.

Doc ID: 1007035

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