OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a Long-Term Issue Credit Rating (Long-Term IR) of “a” to approximately $846 million of 6.00% Variable Funding Credit-Linked Note (CLN), due July 1, 2038, issued by Weston2038 LLC (Weston2038), a Delaware limited liability company (Issuer). The outlook assigned to the Credit Rating (rating) is stable.
The CLN is in exchange for a Variable Funding Surplus Note issued by Redding Reassurance Company 3 LLC (Redding Re 3), a Missouri-domiciled special purpose life insurance company and a direct wholly owned subsidiary of Wilton Reassurance Company (Wilton Reassurance). The CLN is used to support the excess reserves requirement for a specified block of life insurance policies ceded by Wilton Reassurance on a coinsurance basis to Redding Re 3. In additional to the CLN, the Traditional Collateral transferred to Redding Re 3 to support economic reserves are to be held in a Reinsurance Trust Account for the benefit of Wilton Reassurance.
At the time of the issuance of the CLN, Wilton Reassurance will provide capital of approximately $86 million to Redding Re 3 with cash/liquid assets at a level consistent with 250% Company Action Level Risk- Based Capital. Redding Re 3, at the time of the issuance of the CLN, will issue the Variable Funding Surplus Note to Weston2038, with a face amount equal to the initial excess reserves in exchange for the equivalent face amount of the CLN issued by Weston2038. The Variable Funding Surplus Note and the CLN will have the same interest rate. Concurrently, Weston2038 will enter into a risk transfer agreement (i.e., cash-settled ISDA swap) with Hannover Life Reassurance Company of America (Bermuda) Ltd. (Hannover Re Bermuda) to provide liquidity for any redemption/monetization of the CLN.
The rating assigned represents A.M. Best’s current opinion as to the issuer’s ability to meet its financial obligations to the noteholders when due. The rating primarily takes into consideration the following: Hannover Re Bermuda’s Long-Term Issuer Credit Rating (Long-Term ICR) of “aa” as the swap counterparty to Weston2038; netting arrangements among transaction parties; the thin capitalization of Weston2038; Wilton Reassurance’s Long-Term ICR, as the entity provides support of the 250% Company Action Level Risk-Based Capital for Redding Re 3; and the potential legal risks related to enforceability of the various transaction agreements and potential consolidation issues of various parties.
The Long-Term IR could be upgraded or downgraded and/or the outlook revised if material changes occur in the financial condition and ratings of Hannover Re Bermuda or if Wilton Reassurance’s ratings decline significantly.
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