According to a recent Fitch Ratings peer review, the ratings of the Midsize Niche North American Life Insurers peer group are driven by their differentiated business profiles.
Fitch views the Reinsurance Group of America’s (RGA) entrenched market position and long track record in the global reinsurance market favourably.
RGA participates in the North American ordinary life recurring premium markets, whilst Wilton Re and Fortitude Group Holdings are primarily focused on acquiring runoff insurance blocks.
The review suggests Wilton Re has a long track record in the runoff market, with demonstrated pricing expertise. The company also maintains a modest new business presence in the U.S. and Canada.
Fortitude Re’s initial balance sheet consisted solely of legacy liabilities assumed from American International Group (AIG), but the company has grown through acquisitions of runoff life insurance, annuities, and property/casualty business.
RGA’s primary risk is mortality, therefore, the company incurred material COVID-19 claims in 2020 and 2021. These claims negatively affected profitability.
Wilton Re’s longevity and morbidity exposure were profitable in 2020 and 2021, offsetting the elevated mortality stemming from COVID-19.
General market conditions resulted in increased competition and fewer mortality blocks available in the marketplace. Fitch expects the earnings metrics from this peer group to benefit from rising interest rates, though the market volatility is a headwind.
While there is a robust pipeline of runoff blocks in the market, there is increased demand for runoff blocks, with newer entrants, including insurers backed by alternative asset managers. Interest rates have increased, but remain low by historical standards, which, coupled with strategic shifts away from capital market-sensitive businesses and pressure from shareholders, are expected to remain an impetus for further block transactions.
Fortitude Re’s lower company profile score considers its more limited track record in running off its existing liabilities and in acquiring and pricing runoff business.
Fitch states that distinct from its peers, Fortitude Re’s balance sheet includes property/casualty exposure, which is primarily excess workers’ compensation and environmental assumed from AIG.
