KBRA assigns an A- insurance financial strength rating (IFSR) to Heritage Life Insurance Company (HLIC). The Outlook for the IFSR is Stable. HLIC is a stock life insurance company domiciled in Arizona that reinsures life and annuity products as well as supplementary contracts. Current ownership acquired the company in 2012.

Key Credit Considerations

The rating on HLIC reflects solid capitalization, an experienced leadership team, and a conservative liquidity position. HLIC’s year-end 2024 CAL RBC ratio of 417% has improved from 2022 and 2023 and is supported by ongoing capital infusions, including a $500 million equity contribution in 2024 and a $600 million equity contribution in 2025 from its ultimate parent to fund new reinsurance transactions and growth. Executive leadership is long-tenured and has executed more than 30 reinsurance agreements with over 20 cedants since 2012. Liquidity is strong, with HLIC maintaining nearly $1.5 billion in cash and equivalents as of 1Q25. The investment portfolio is diversified with roughly 70% of invested assets held in bonds, over 90% of which are investment-grade. Supplemental borrowing capacity through FHLB lines and bank facilities, together with a disciplined duration‐mismatch limit, further supports HLIC’s capital position.

Balancing these strengths are HLIC’s concentration providing reinsurance for spread-based annuity products. This exposes the company to spread compression in falling-rate environments and disintermediation risk when rates rise, though spreads have thus far stayed at or above management's internal target. Enterprise risk management, while recently formalized, must continue to evolve to match the firm’s growing balance sheet and its ambition to pursue larger transactions. Earnings remain heavily dependent on a small number of treaties, heightening counterparty and concentration risk despite the ability to pause forward-flow business. Finally, HLIC operates in an increasingly competitive annuity reinsurance market dominated by larger, more established players; success in moving up-market will require disciplined underwriting and continued capital support.

Rating Sensitivities

Consistent operating and net income that results in internal generation of capital, material favorable variance to forecasts provided to KBRA and/or further diversification of HLIC’s liabilities could result in positive rating action. Material deterioration in risk-based capitalization below company targets, a material adverse change in risk profile and/or material unfavorable variance to forecasts provided to KBRA could result in negative rating action.

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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), one of the major credit rating agencies (CRA), is a full-service CRA 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 (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1010123

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