Fitch Affirms Wilton Re’s Ratings, Outlook Stable
Fitch Ratings has affirmed the ‘A+’ Insurer Financial Strength [IFS] ratings of Wilton Reassurance Company, Wilton Reinsurance Bermuda Limited, Wilton Reassurance Life Company of New York, Texas Life Insurance Company and Wilco Life Insurance Company [collectively referred to as Wilton Re]. Fitch has also affirmed the Long-Term Issuer Default Rating [IDR] of Wilton Re Ltd. at ‘A-’. The Rating Outlook is Stable.
A statement from the ratings agency said, “The ratings are based on Wilton Re’s strong insurance earnings, balance sheet strength that includes solid capitalization across the operating subsidiaries, a conservative investment portfolio, ample liquidity and a reasonable amount of financial leverage.
“Fitch believes Wilton Re has taken a disciplined approach to growth which has resulted in its generally strong operating performance. It has prudently deployed capital only on transactions that have consistently met or exceeded its profitability hurdles. As a result, the company’s operating performance to date has compared favorably to peers. Results in 2015 were negatively impacted by adverse mortality and unfavourable unlocking assumptions, which is consistent across the life insurance industry.
“Wilton Re completed several large closed block transactions in 2014 that increased net reserves from $6.5 billion to $12.7 billion. Additionally, the company completed the purchase of Aegon Canada ULC [since renamed ivari Canada ULC] in 2015 which marks Wilton Re’s entrance into the Canadian life insurance market. Fitch views rapid growth cautiously and will continue to monitor the profitability of these transactions.
“Fitch believes capitalization is strong across Wilton Re’s operating subsidiaries. The company maintains risk-based capital levels in excess of Fitch’s guidelines for the current rating category for U.S. operations. At year-end 2015, the RBC ratio of the U.S. subsidiaries was 569% of the company action level [CAL]. The company cedes a portion of its business to Wilton Reinsurance Bermuda Limited. Accounting rules in Bermuda are less conservative than U.S. statutory accounting. Given these differences, Fitch looks at consolidated GAAP operating leverage to judge capital adequacy across the organization. Wilton Re’s ratio was 7.7x at year-end 2015, a strong result given its business mix.
“Fitch views Wilton Re’s investment portfolio as conservative and investment losses since inception have been minimal. Fixed-income securities comprised 92% of Wilton Re’s invested assets at year-end 2015. The bond portfolio is high quality and liquid with 6% below investment-grade [BIG] securities. The company has above average exposure to low interest rates due to its current asset liability duration mismatch.
“Fitch believes that Wilton Re’s liquidity position is sound. The company currently has cash and liquid assets to meet obligations at the holding company and operating company levels. Additional sources of liquidity include a $100 million senior revolving credit facility and as a member of the FHLB of Des Moines and the FHLB of Indianapolis Wilton Re has access to additional borrowing capacity.
“Fitch views Canada Pension Plan Investment Board’s [CPPIB] ownership of Wilton Re as a credit positive for the company since it removed uncertainty regarding the long-term ownership structure of the company and improved the company’s financial flexibility. Fitch classifies Wilton Re as a non-core subsidiary of CPPIB, but CPPIB views the North American life insurance market as a long-term investment opportunity. Since its purchase, CPPIB has demonstrated its ongoing commitment to Wilton Re by providing equity capital to fund the purchase of ivari Canada ULC and to refinance Wilton Re’s funding arrangement associated with its XXX/AXXX statutory reserve requirements.
“Fitch views the $1 billion of secured support notes issued by Redding Funding Ltd. as a secured inter-company debt obligation. As such, the rating for the secured support notes is notched from guarantor Wilton Re’s Long-Term IDR of ‘A-’. The degree of notching is based primarily on the assumed relative recoveries of the obligations in the event of default/failure. For the secured support notes, a baseline recovery assumption of Superior was used based on an analysis of asset performance under stress. Thus, the secured support notes are notched up one from the IDR.”
