AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of recently established Bermuda-based reinsurer Talcott Life Re.
AM Best states that the ratings reflect the reinsurer’s balance sheet strength, which it assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The outlook of these Credit Ratings is stable.
Over the last few years, global investment firm Sixth Street (Talcott’s owner) has committed significant capital into the life/annuity insurance space.
Under the terms of the transaction, approximately $20 billion of fixed-indexed annuity liabilities were placed with Talcott and Talcott Life Re (formerly registered as Sutton Life Re).
The transaction closed at year-end 2021, resulting in Talcott and Talcott Life Re managing $111 billion in liabilities and surplus.
AM Best states that its BCAR (Best’s Capital Adequacy Ratio) shows Talcott Life Re’s balance sheet at the assessed level of strongest, due in part to relatively conservative initial investment allocations for year-end 2021 and pro forma 2022.
The rating agency writes, “Talcott Life Re has utilised resources and already established policies and procedures from Talcott for investment management and for its ERM framework.
“AM Best anticipates that Talcott Life Re will engage in future transaction activity as it executes its strategy of engaging in reinsurance flow transactions and block acquisitions.
“Despite these favourable assessments, AM Best notes that along with many others in the industry, Talcott Life Re has substantial unrealised losses due to the rising interest rate environment’s impact on long-duration assets.”
AM Best continues, “Mitigating this risk, however, is the company’s favourable liquidity driven by prudent asset liability management, inter-company lines of credit, non-utilised third-party financing, and the implicit support of a large ultimate parent.
“AM Best will continue to monitor the evolution of asset holdings as Talcott Life Re portfolio is redeployed over time to target allocations.”
In January of 2022, Sixth Street announced a transaction between non-US affiliates of Talcott and Principal Financial Group, Inc., reinsuring $16 billion of fixed annuities and $9 billion of universal life with secondary guarantees (ULSG).
In August later that year, Talcott executed a flow reinsurance transaction between itself and an unnamed US annuity writer.
Moody’s has since upgraded the insurance financial strength (IFS) ratings of Talcott Resolution Life Insurance Company and Talcott Resolution Life and Annuity Insurance Company to Baa2 from Baa3.
