AM Best Affirms Issue Credit Rating of Weston2038 LLC’s Credit-Linked Note

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Long-Term Issue Credit Rating (Long-Term IR) of “a” (Excellent) on the $846 million (of which $550 million remained outstanding as of March 31, 2023), 6.00% variable funding credit-linked note (note), due July 1, 2038, issued by Weston2038 LLC (Weston2038), a Delaware limited liability company (issuer). The outlook of this Credit Rating (rating) is stable.

The note is in consideration of a variable funding surplus note issued by Redding Reassurance Company 3 LLC (Redding Re 3), a Missouri-domiciled special purpose financial captive reinsurer and a direct wholly owned subsidiary of Wilton Reassurance Company (Wilton Reassurance). The variable funding surplus note is used to support excess reserves for a specified block of life business policies ceded by Wilton Reassurance on a coinsurance basis to Redding Re 3.

Redding Re 3 issued a surplus note (in the form of a variable surplus note) to Weston2038 with a face amount equal to the initial amount of excess reserves, in exchange for the Weston2038-issued note with an equivalent face amount. The variable surplus note and note have the same interest rate. Concurrently, Weston2038 entered 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 note.

As of December 2022, statutory reserves, economic reserves and excess reserves were in line with the projected results.

The rating action represents AM 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 of “aa” (Superior) as the swap counterparty to Weston2038; netting arrangements among transaction parties; no reserves or funds at Weston2038, except reliance on funds provided by Redding Re 3; and potential legal risks as it relates to enforceability of the various transaction agreements.

The Long-Term IR could be upgraded or downgraded, or the outlook revised if material changes occur in the financial condition and ratings of Hannover Re Bermuda.

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