Fortitude Re lifted by Fitch; outlook stable

Bermuda-based reinsurer Fortitude Re has received an across-the-board upgrade from Fitch Ratings, which raised both its insurer financial strength rating and its issuer default ratings.

According to the ratings agency, it has upgraded Fortitude Reinsurance Company (FRL) and Fortitude Life Insurance & Annuity Company’s (FLIAC) IFS ratings to ‘A-’ from ‘BBB+’. Fitch has also upgraded the IDRs for FRL’s holding companies: Fortitude Group Holdings (FGH) and FGH Parent (collectively known as Fortitude Re) to ‘BBB+’ from ‘BBB’.

The rating outlook is stable.

Fitch said the upgrade reflects its improved view of Fortitude Re’s company profile which has been enhanced over the past few years following several strategic deals, including reinsurance transactions that have expanded its scale and diversified its risk profile.

In a statement, the ratings agency said: “These transactions have strengthened the company’s market position in the life and annuity reinsurance sector, further diversified its liability profile, and enhanced its earnings stability.”

Fitch listed a number of key rating drivers for Fortitude Re.

It said the reinsurer’s company profile was enhanced through reinsurance deals: Fitch views Fortitude Re's company profile more favorably due to its successful growth and expansion. Since its sale from American International Group (AIG) to a group of investors in 2020, Fortitude Re has closed 19 transactions, including its $3.4 billion LTC and IDI transaction with Unum Group and its $4 billion annuity reinsurance agreement with Taiyo Life Insurance Company this year.

“Through these deals, it has acquired more than $100 billion in total reserves across Bermuda, the US and Asia. It currently holds 10% global market share in the block reinsurance market, with approximately 26% and 10% market share in Asia and North America, respectively,” said Fitch.

Fortitude Re has increased in size and scale, according to Fitch. “Fortitude Re has material scale, including a mix of life insurance, annuities and property and casualty (P&C) business assumed from AIG at the company’s inception,” Fitch said.

Fitch expects the company to continue to grow including through block acquisitions focused on life insurance and annuities in the US and Japan. However, the market is highly competitive, it added, and block transactions are opportunistic by nature. Fitch also expects Fortitude Re to continue growing through flow reinsurance transactions, as well as through funding-agreement-backed note issuances, which adds more predictability to earnings. Fitch would view favourably sustained, profitable growth from new transactions while successfully running off existing liabilities.

Furthermore, Fitch stated that Fortitude Re’s capital position is viewed as strong, factoring in results under Fitch’s Prism model, along with the company’s non-risk-based capital metrics. Aligning with Fitch’s capital assessment, regulatory capital ratios are strong at both the Bermuda and US operations: as of 2Q25, ECR was 197% and RBC was 640%, respectively.

Fitch said: “As a composite insurer, FRL benefits from Bermuda’s capital diversification, which gives it an advantage over peers competing for the acquisition of runoff blocks. As of 3Q25, Fortitude Re’s financial leverage was at 24%, consisting of $750 billion in senior notes and $787 billion in term loans. Financial leverage is expected to remain at or below 27% over the longer term.”

Fortitude Re, added Fitch, utilises swaps and options to offset interest rate risk and protect capital from tail risk. The interest rate hedge is managed tightly, it said, targeting within 0.25 year duration mismatch. Favourably, the illiquid nature of Fortitude Re's liabilities minimises disintermediation risk. For the $31 billion VA block acquired from Prudential ($27 billion as of year-end 2024), the company targets full hedging of the equity and interest rate risks in the products.

Additionally, said Fitch, Fortitude Re’s reinsurance blocks have largely performed in line with Fortitude Re’s pricing assumptions and expectations to-date. This includes its 2023 transaction with Lincoln National Life Insurance Company, in which it assumed $28 billion of life insurance and annuity reserves.

Fitch added: “Its 2023 transaction with Prudential Financial, in which it assumed $31 billion of legacy variable annuities (VA), is also performing. However, Fortitude Re has adjusted its hedging strategy over time to reduce volatility but also potential upside for the deal.”

While earnings have been volatile due to the business mix, Fitch expects consistency to improve as additional deals season.

Fitch also mentioned Fortitude Re’s increased investment risk. It said: “Fortitude Re’s risky asset ratio increased to 151% in 2024 from 134% in 2023, primarily due to a moderate rise in exposure to below-investment-grade bonds and private credit, particularly private asset-based finance instruments. Over the year, total private credit exposure grew to 21% of the portfolio in 2024, up from 17.5% in 2023.”

Fitch expects Fortitude Re to continue increasing its allocation to less liquid asset classes, with a particular emphasis on residential mortgages and private credit but for growth in capital to temper further increases in the ratio.

Lastly, Fitch referred to Fortitude Re’s beneficial private equity partner. “Carlyle and its limited partnership investors hold a controlling interest in Fortitude Re, with Carlyle directly owning approximately 11%. Carlyle has demonstrated a strong commitment to supporting Fortitude Re’s growth, notably participating in a $2 billion capital raise in 2022.”

In addition, Carlyle manages a portion of Fortitude Re’s invested assets, a share that Fitch expects to increase over time.

Fitch considers Fortitude Re’s ability to leverage Carlyle’s investment expertise – as well as Carlyle’s capacity to source assets and generate above-average returns in private equity and direct credit investments – a significant strength.

Fitch said: “Carlyle and Fortitude Re are both investors in a recently launched sidecar, Fortitude Carlyle Asia Reinsurance. The sidecar will allow Fortitude Re to optimise its capital position while continuing to grow and represents a source of fee-based income for both Fortitude Re and Carlyle based upon administrative services and investment management agreements.”

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