AM Best Affirms Issue Credit Ratings of Weston2038 LLC’s Credit-Linked Notes

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 $487 million is currently outstanding as of March 31, 2024), 6.00% Series Hannover, No. 1 variable funding credit-linked note (Block 1 CLN), due July 1, 2038, issued by Weston2038 LLC (Weston2038), a Delaware limited liability company (issuer). Concurrently, AM Best has affirmed the Long-Term IR of “a” (Excellent) on the $433 million (of which $476 million is currently outstanding as of March 31, 2024), 6.00% Series Hannover, No. 2 variable funding credit-linked note (Block 2 CLN), due July 1, 2043, also issued by Weston2038. The outlook of these Credit Ratings (ratings) is stable.

Both the Block 1 CLN and Block 2 CLN are each in consideration of a variable funding surplus note (VSN) 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). Each VSN supports the excess reserves for a block of life insurance business retroceded by Wilton Reassurance to Redding Re 3 and has a face amount equivalent to that excess reserve balance, which is also equivalent to the face amount of the corresponding credit-linked note for which the VSN is exchanged. For the Block 1 CLN transaction, Wilton Reassurance retrocedes a specified block of level term and universal life secondary guaranty business policies on a coinsurance basis to Redding Re 3. For the Block 2 CLN transaction, Wilton Reassurance retrocedes a specified block of universal life secondary guaranty business policies on a coinsurance funds withheld basis to Redding Re 3.

The VSN and corresponding credit-linked note for the Block 1 CLN and Block 2 CLN have the same interest rate. Concurrent with the issuance of the credit-linked notes, Weston2038 entered into risk transfer agreements (i.e., cash-settled ISDA swap) with Hannover Life Reassurance Company of America (Bermuda) Ltd. to provide liquidity for any redemption/monetization of the credit-linked notes.

As of December 2023, statutory reserves, economic reserves and excess reserves of the underlying life insurance business pertaining to the Block 1 CLN and Block 2 CLN 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 ratings primarily take into consideration the following: Hannover Life Reassurance Company of America (Bermuda) Ltd.’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 Life Reassurance Company of America (Bermuda) Ltd. or Wilton Reassurance.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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