Fitch Affirms Wilton Re's Ratings; Outlook Stable

CHICAGO--()--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'.

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&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Tana M. Higman, +1-312-368-3122
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
Martha M. Butler, CFA, +1-312-368-3191
Senior Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Tana M. Higman, +1-312-368-3122
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
Martha M. Butler, CFA, +1-312-368-3191
Senior Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com