LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings of “bbb+” of Athora Life Re Ltd. (Athora Re) (Bermuda) and its subsidiary, Athora Ireland plc (Athora Ireland) (Ireland). The outlook of these Credit Ratings (ratings) is stable.
Athora Re’s ratings reflect its balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings of Athora Ireland reflect its strategic importance to Athora Re as a vehicle for writing reinsurance business in the European Union. It is likely that a portion of new business written by Athora Ireland will be retroceded to Athora Re.
Athora Re, which was incorporated in April 2017, benefits from the support of its parent, Athora Holding Ltd. (Athora). Athora specialises in the consolidation of life insurance back books in Europe and has raised EUR 4 billion of committed capital, of which approximately EUR 700 million has been drawn to date. A significant drawdown is expected to support the group’s acquisition of Netherlands-based insurer VIVAT N.V., which is planned to complete in the first quarter of 2020, subject to regulatory approval. The company also benefits from Athora’s strategic partnerships with shareholders Athene Holding Ltd. and Apollo Global Management, Inc. (Apollo). Apollo provides investment management services to the group.
AM Best projects Athora Re’s risk-adjusted capitalisation to be at the strongest level for year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). Although risk-adjusted capitalisation is likely to decline over the medium term due to planned business growth and increased investment risk, Athora is expected to provide Athora Re with sufficient capital to support its strategy. An offsetting rating factor is the material uncertainty surrounding the scale, timing and commercial terms of future reinsurance transactions, and how these will influence the company’s balance sheet composition.
AM Best expects Athora Re’s investment portfolio to remain liquid and well-diversified, held predominantly in cash and cash equivalents, investment grade fixed income and residential mortgages. However, an allocation towards private credit and alternative investments exposes the company to elevated investment risk. Athora Re’s target of a close-to-zero duration gap somewhat mitigates this risk, as does strategic partner Apollo’s significant experience in credit investing.
Athora Re’s performance is not expected to meet the group’s ambitious longer term return on equity targets, while it builds scale and structures its investment portfolio toward its target asset allocation. Over time, AM Best expects investment returns to be a significant driver of performance, due to high, albeit potentially volatile, yields on private credit and alternative investments.
A key pillar of the company’s strategy, and the main source of forecast business growth, is the provision of external reinsurance solutions to life insurers in the European market. However, Athora Re has only transacted internal reinsurance business to date. Internal reinsurance facilitates the centralisation of liabilities in Bermuda for capital optimisation. AM Best expects the business profile of Athora Re to be heavily driven by the execution of the broader group’s business plan.
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