Ratings Roundup: Wilton Re, Tugu

March 4, 2014

A.M. Best has commented that the ratings for Bermuda-based Wilton Re Holdings Limited and its insurance subsidiaries remain unchanged following Wilton Re’s recent announcements that it intends to acquire Continental Assurance Company (CAC) from CNA Financial Corporation and Conseco Life Insurance Company (CLIC) from CNO Financial Group, Inc. Wilton Re’s U.S. operating company, Wilton Reassurance Company, will acquire 100 percent of the common stock of CAC, an indirect, wholly owned subsidiary of CNA. This transaction will consist primarily of payout annuity business including in-force structured settlements and group annuities totaling $2.5 billion of statutory reserves. Wilton Reassurance Company has also announced that it will acquire 100 percent of the common stock of CLIC, an indirect, wholly owned subsidiary of CNO. This transaction consists of approximately $3.4 billion of run-off insurance liabilities including $2.2 billion of interest sensitive life business, $0.4 billion of traditional life business and $0.7 billion of annuities and deposits. This deal is expected to close mid-year 2014 with a purchase price of approximately $237 million paid for in cash. Best said: “Both of these transactions will add to Wilton Re’s liability profile while maintaining the company’s longevity risk management strategy and is in line with Wilton Re’s core administrative reinsurance capabilities.” The report added that following the transactions, Best “expects Wilton Re to remain adequately capitalized as these transactions will be funded through excess capital deployment.” The rating agency also, indicated that it would “continue to review the integration and structure effect, along with the impact on Wilton Re’s operating results and risk-adjusted capital when the acquisitions are finalized. If the transactions are deemed to impact the financial flexibility or risk-adjusted capital metrics of Wilton Re, then negative rating pressure may occur.”

A.M. Best has revised the rating outlook to stable from positive and affirmed the issuer credit rating (ICR) of “bbb” of Hong Kong-based Tugu Insurance Company Limited. Best has also affirmed Tugu’s financial strength rating of ‘B++’ (Good). The outlook for this rating remains stable. “The ratings reflect Tugu’s strong risk-adjusted capitalization, conservative net premium leverage and strong liquidity,” Best explained. “The change in the outlook for the ICR was mainly driven by the company’s continued volatile underwriting performance.” Best also noted that “Tugu’s risk-adjusted capitalization remains sound with its relatively low level of net premium leverage and low investment risk profile. The company mainly invests in cash and bonds that provide strong liquidity to serve its liability needs, while its investment portfolio also contributes a stable stream of interest income to net profits.” As offsetting factors Best cited Tugu’s “continued volatile underwriting results, largely due to the deterioration in the loss experience of the employees’ compensation business written in Hong Kong. Moreover, Tugu maintains a small market share in the Hong Kong general insurance market, which is characterized as highly fragmented with intense competition. Improving its underwriting performance and establishing a stronger brand presence remain challenging over the medium term.” In conclusion Best said: “Rating upgrades could occur if Tugu achieves sustainable improvement in underwriting performance. Negative rating actions could arise if the company’s underwriting performance continues to deteriorate and/or it experiences a substantial decline in its risk-adjusted capitalization.”

 

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