Wilton Re financial strength rating of ‘A’ affirmed

Long term re/insurer Wilton Re, which has a Bermuda subsidiary, has had its insurer financial strength rating of ‘A’ affirmed. The outlook is stable.

However, Fitch maintained its negative rating watch on Wilton Re’s Canadian subsidiary ivari, which is due to be sold to financial services company Sagicor, and maintained its financial strength rating of A-.

Fitch said Wilton’s ratings were one notch higher than its standalone credit quality, due to its ownership by CPP Investments.

Fitch said: “The uplift recognises Wilton Re as a noncore subsidiary, but important investment platform for CPP Investments. Fitch does not rate CPP, but believes it to be of the highest credit quality based on its scale and importance in supporting the Canada Pension Plan.

“While CPP has demonstrated a willingness to support Wilton Re's growth and contributed capital over the years, over recent years capital has flowed upstream, given Wilton Re's excess capital position compared with its target.”

Fitch said Wilton’s position to acquire runoff blocks was strong, but noted the market is “episodic” and competition is growing.

“Favourably, the company has a diversified profile, which it exhibited through the pandemic, with longevity and morbidity experience offsetting its elevated mortality,” Fitch said. “Recent transactions are not viewed as materially altering the company's risk profile and Fitch views the company as disciplined in its key pricing assumptions.”

Fitch said Wilton Re's US risk-based capital ratio declined year on year, but continued to exceed its target.

“Wilton Re's Bermuda subsidiaries' Bermuda solvency capital requirement (BSCR) ratios remain well in excess of their targets and continue to remit capital to the parent,” Fitch said. “Financial leverage was 19% at year-end 2022, which compares favourably with ratio guidelines for the current rating level. ivari's life insurance capital adequacy test (LICAT) ratio was 145% at year-end 2022.”

Wilton Re Bermuda is headed by Sylvia Oliveira (pictured).

Fitch noted that Wilton’s enterprise return on equity was 14% in 2022 and said earnings metrics were expected to improve after the sale of ivari.

But Fitch said Wilton Re’s risky assets as a percentage of capital exceeded similarly rated peers and was expected to further increase over the rating horizon, reflecting the company's continued strategic asset allocation program that includes further increases in its high-yield allocation and private equity exposure.

“Inclusive of capital in Bermuda, the company's US risky asset ratio is estimated at 144% at YE 2022, which is up from the prior year, primarily due capital calls on private equity commitments,” Fitch said,

Fitch said Wilton Re announced in August, 2022 that it had agreed to sell ivari to Sagicor Financial Company Ltd.

“Consequently, ivari's ratings reflect its standalone credit quality, with ownership uplift no longer applicable. The sale is viewed as neutral to Wilton Re's ratings,” Fitch said.

“However, it will materially reduce its shareholders' equity, adversely affecting its financial leverage, which is partially offset by an expectation of improved earnings metrics and enhanced stability following the sale. ivari was materially negatively affected by the implementation of IFRS 17, with capital contributed to maintain the LICAT above target levels.”

ivari reported CAD11 million of net income in 2022, down from CAD74 million in the prior year. Earnings were below run-rate pre-tax expected earnings of CAD133 million, primarily as a result of unfavourable equity market movements and updates to the lapse assumptions for all life insurance blocks.