Fitch Assigns 'A+' IFS Rating to ivari; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned an Insurer Financial Strength (IFS) rating of 'A+' to ivari Canada ULC (ivari). The Rating Outlook is Stable.

Fitch views ivari as 'important' to its parent, Wilton Re Ltd. (Wilton Re) as defined in the agency's Insurance Rating Methodology. ivari benefits from a one-notch uplift from its standalone assessment of 'A' as a result of its ownership. Fitch views ivari's strategic importance as 'important' because of its relatively small size compared with the group as a whole, its different branding and its newness to the organization.

KEY RATING DRIVERS

ivari's standalone rating assessment reflects the company's small size and scale within the Canadian life insurance market and modest earnings profile partially offset by the company's strong capitalization, lack of financial leverage and conservative investment portfolio.

Fitch views the Canadian life insurance market as rational due in part to the market's maturity and concentration of business among a small number of companies, which has led to greater pricing rationality and less aggressive product guarantees. ivari is significantly smaller and much less diversified than the three life insurance companies that dominate the market. Fitch believes the company has a defendable position in the universal life and term life market in Canada but that ivari has a more modest earnings profile relative to its peers.

Fitch believes ivari's standalone capitalization is strong on a risk-adjusted basis, with a minimum continuing capital and surplus requirement (MCCSR) of 201% at June 30, 2016. As such, Fitch does not expect ivari will require additional capital from its parent in the near to intermediate term. If capital is needed over the longer term, Wilton Re's ultimate parent, Canada Pension Plan Investment Board (CPPIB), has demonstrated its willingness and ability to support its subsidiaries in the past.

Fitch views ivari's investment portfolio as conservative. Cash and fixed income securities account for 77% of the investment portfolio. The fixed income portfolio is liquid and high quality with 97% of bonds publicly traded and no exposure to below investment grade securities. At almost CAD168 million in total investment provisions, Fitch believes ivari is well-provisioned for future credit loss and that future impairments in excess of actuarial reserve provisions are likely to remain within manageable levels and ratings expectations.

Fitch views ivari as 'important' to its parent. The purchase of ivari in July 2015 marks Wilton Re's entrance into the Canadian life insurance market. ivari reports its results on a Canadian IFRS basis while Wilton Re's other subsidiaries report results on a U.S. GAAP and/or U.S. statutory basis. No intercompany reinsurance arrangements are currently in place and ivari does not share back-office functions, accounting, information technology or other systems with other Wilton Re group members although three senior executives from Wilton Re are on the board of directors of ivari. ivari is domiciled in Canada where Wilton Re and CPPIB are also domiciled.

Fitch affirmed the ratings of Wilton Re Ltd. and its insurance operating subsidiaries with a Stable Outlook on May 4, 2016.

RATING SENSITIVITIES

Key rating triggers for ivari's ratings that could lead to a negative rating action include:

--A change in Fitch's view on the strategic importance of ivari to Wilton Re Ltd.;

--A weakening in ivari's credit profile that leads to a downgrade in its standalone assessment.

Key rating triggers for Wilton Re Ltd.'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 ROE below 10%.

Key rating triggers for Wilton Re Ltd.'s ratings that could lead to a positive rating action include:

--A change in Fitch's view on the strategic importance of Wilton Re to CPPIB.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)
https://www.fitchratings.com/site/re/881564

Additional Disclosures

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011345

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011345

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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Tana M. Higman, +1-312-368-3122
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Jamie R. Tucker, CPA, +1-212-612-7856
Associate Director
or
Committee Chairperson:
Douglas M. Pawlowski, CFA, +1-312-368-2054
Senior Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Tana M. Higman, +1-312-368-3122
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Jamie R. Tucker, CPA, +1-212-612-7856
Associate Director
or
Committee Chairperson:
Douglas M. Pawlowski, CFA, +1-312-368-2054
Senior Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
hannah.james@fitchratings.com