OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Fortitude Reinsurance Company Ltd., Fortitude Life Insurance & Annuity Company (Phoenix, AZ) and Fortitude International Reinsurance Ltd, which are members of FGH Parent, LP, and collectively referred to as Fortitude Re. All companies are domiciled in Pembroke, Bermuda, unless otherwise noted.
The ratings reflect Fortitude Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The negative outlooks reflect pressure on the balance sheet strength assessment due to increasing liability risk. The long-tail nature of reserves introduce significant potential volatility to the group’s capital position. Further negative rating action may occur if there were to be a material decline in risk-adjusted capitalization or a deterioration in other balance sheet strength metrics as additional risk transactions are added.
The rating affirmations of Fortitude Re also reflect the group’s strategic importance to the greater organization’s operations. The ratings benefit from implicit and explicit support from the group’s parent holding company, FGH Parent, LP.
The very strong balance sheet strength assessment considers Fortitude Re’s risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and AM Best’s expectation that Fortitude Re will maintain similar levels of capital strength consistently as the company executes transactions that may be significant in size and add materially to the company’s portfolio of invested assets and reserves. AM Best believes that Fortitude Re possesses sufficient financial flexibility to source additional capital if needed to support its underwriting operations. The overall balance sheet assessment of very strong also recognizes Fortitude Re’s long-dated investment portfolio, which includes allocations to private and alternative investments.
AM Best notes volatility on operating earnings due to the market environment and given the group’s longer-dated runoff liabilities. The group’s operating performance metrics could vary meaningfully from year to year, also leading to balance sheet volatility. Over the longer term, AM Best expects that Fortitude Re will demonstrate adequate returns on capital.
In its business profile assessment of Fortitude Re, AM Best recognizes that the group benefits from a quality management team that possesses significant experience in the open market as a runoff specialist. AM Best will continue to monitor Fortitude Re’s progress as it executes transactions and materially adds to the group’s portfolio.
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