Best Affirms Wilton Re, U.S. Subs Ratings

April 25, 2014

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Wilton Reinsurance Bermuda Ltd., Wilton Reassurance Company, based in Minneapolis, Texas Life Insurance Company, Heritage Union Life Insurance Company, headquartered in Wilton, Connecticut, and Wilton Reassurance Life Company of New York, collectively referred to as Wilton Re.

Best also affirmed the ICRs of “bbb” of Wilton Re Holdings Limited and Wilton Re Finance, LLC, based in Delaware, “as well as the debt rating of “bbb” on the $300 million 5.875 percent senior unsecured notes due 2033 of Wilton Re Finance. The notes are unconditionally guaranteed by its parent, Wilton Re U.S. Holdings, Inc. (Delaware) and the ultimate parent, Wilton Re Holdings Limited.

Best noted that Wilton Re Holdings Limited’s adjusted financial leverage and interest coverage are within its expectations. The outlook for all ratings is stable. All companies are domiciled in Hamilton, Bermuda, unless otherwise specified.

The rating affirmations for Wilton Re “reflect its solid risk-adjusted capitalization level, its recent increased transaction activity, strong operating earnings and high quality balance sheet and liability structure, which are principally focused on mortality risk,” Best explained.

The report also pointed out that “Wilton Re has grown its business through an acquisition-oriented strategy with an emphasis on in-force solutions, primary insurance and business solutions for both smaller and larger organizations. This focus has contributed to its favorable operating earnings and efficiencies in recent years.

“This trend continues in 2014 with the recently announced acquisitions of Continental Assurance Company from CNA Financial Corporation and Conseco Life Insurance Company from CNO Financial Group, Inc.”

Best said it “expects Wilton Re to remain adequately capitalized as these new transactions will be funded through excess capital deployment;” adding that it would “continue to review the integration and structure effects, along with the impact on Wilton Re’s operating results and risk-adjusted capital when the acquisitions are finalized.”

The enterprise also announced this year that Wilton Re Holdings Limited will be acquired by the Canada Pension Plan Investment Board (CPPIB).

Best indicated that following the acquisition, it “expects no variation in Wilton Re’s operating profile or senior management. Although, the transaction has not yet closed, it is anticipated that CPPIB would provide future capital to Wilton Re to fund further growth opportunities.”

However, Best also indicated that it would “continue to review the integration and capital management plans and any potential business impact until the acquisition is finalized.” When the transaction closes Best will also “monitor Wilton’s Re’s risk appetite, growth plans and access to capital.”

In addition the report said the “rating affirmations also reflect the continued low interest rate environment, which has resulted in modest spread compression and may pressure operating earnings. However, protection from potential disintermediation risk through the execution of a hedging program does exist. Other offsetting rating factors include potential execution risks and competitive pressures associated with acquiring larger blocks.

Factors that may lead to positive rating actions include continued successful execution and integration of profitable mortality reinsurance deals that would enhance the scale and business profile of the group while maintaining solid risk-adjusted capitalization levels. Factors that may lead to negative rating actions include a material decline in capital, weakening of profitability or substantial investment losses.

Source: A.M. Best

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