(The following statement was released by the rating agency)
CHICAGO, October 08 (Fitch) 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 Conseco 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-'. A complete list of rating actions is
provided at the end of this release. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings are based on Wilton Re's consistently 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 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 thus far in 2015 have been negatively impacted by
adverse mortality, 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 (Aegon Canada) 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 (RBC) levels in excess of
Fitch's guidelines for the current rating category for U.S. operations. At
year-end 2014 the RBC ratio of the U.S. subsidiaries was 478% and Fitch
estimates RBC was maintained near that level at June 30, 2015. 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 8.5x at June 30,
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 94%
of Wilton Re's invested assets at year-end 2014. The bond portfolio is high
quality and liquid with 7% below investment-grade (BIG) securities. The company
has above-average exposure to low interest rates due to its current asset
liability duration mismatch.
Fitch also 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 $175
million senior revolving credit facility and, through its membership in FHLB
Wilton Re has access to additional borrowing capacity.
Fitch views Canada Pension Plan Investment Board's (CPPI) 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 its financial
flexibility. Based on the application of Fitch's group rating methodology, 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 Aegon Canada and to
refinance Wilton Re's funding arrangement associated with its XXX/AXXX statutory
reserve requirements.
Fitch views the $1.2 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.
RATING SENSITIVITIES
Key rating triggers for Wilton Re's ratings that could lead to an upward rating
action include:
--A change in Fitch's view on the strategic importance of Wilton Re to CPPIB.
Key rating triggers for Wilton Re's ratings that could lead to a negative rating
action include:
--An increase in financial leverage above 25%;
--Large transactions outside the company's historical risk preference or
expertise or any other material changes in risk appetite for the company;
--A sustained drop in the company's risk-adjusted capital position with no plans
or ability to rectify;
--A decline in GAAP operating return on equity (ROE) below 10%.
The ratings on $1.2 billion secured support notes issued by Redding Funding Ltd.
may change if either the quality of the assets in the collateral account
changes, implying use of a different recovery assumption, or Wilton Re Ltd's IDR
changes.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Wilton Reassurance Company
Wilton Reinsurance Bermuda Limited
Wilton Reassurance Life Company of New York
Texas Life Insurance Company
Conseco Life Insurance Company
--IFS at 'A+'; Outlook Stable.
Wilton Re Ltd.
--Long-term IDR at 'A-'; Outlook Stable.
Wilton Re Finance LLC
--$250 million 5.875% senior notes due March 30, 2033 at 'BBB+'.
Redding Funding Ltd.
--$1.2 billion secured support notes due Dec. 31, 2058 at 'A'.
Contact:
Primary Analyst
Tana M. Higman
Director
+1-312-368-3122
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Secondary Analyst
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
Committee Chairperson
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email:
alyssa.castelli@fitchratings.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 16 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr
_id=991992
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991992
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det
ail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.