MAY 13, 2020 11:54:15 Eastern Daylight Time
AM Best Affirms Credit Ratings of Talcott Resolution Life, Inc. and Its Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - MAY 13, 2020 11:54:15 Eastern Daylight Time
The ratings reflect Talcott Resolution’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). Despite an extraordinary stockholder dividend in 2019, Talcott Resolution maintains the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s variable annuity business at year-end 2019 continued to show performance in line with reserve assumptions, despite material impacts from interest rate- and equity market-related risks in recent periods. While the group has felt the impacts from market volatility due to the COVID-19 pandemic in recent weeks, similar to the rest of the industry, AM Best believes the group’s high level of capitalization and dynamic hedging program should act as a buffer and protect the company’s solid balance sheet position should Talcott Resolution experience increased credit defaults or downward rating migration in its investment portfolio. AM Best notes that the group maintains a moderate amount of exposure to sectors and industries that are likely to be impacted by the COVID-19 pandemic, including commercial mortgage loans (CML) and structured securities, which represent approximately 30% of invested assets. However, CMLs are well diversified with less than 20% in the retail and lodging industries, and structured securities are highly rated, with 97% rated NAIC 1, and include additional credit enhancement.
While Talcott Resolution maintains a very strong balance sheet position, it also maintains a significant amount of reinsurance leverage, as it reinsured over $9 billion of annuity reserves to a subsidiary of Global Atlantic Financial Group Limited, concurrent with its separation from The Hartford Financial Services Group, Inc., in 2018. However, Talcott Resolution’s counterparty risk is considered modest, due to the favorable credit ratings of its key reinsurance partners.
Talcott Resolution’s business profile is viewed as limited due to the run-off nature of its operations and its lack of diversification of revenue and earnings streams. As a result, operating metrics are trending downward, which is expected for a company that is managing run-off business. AM Best will continue to discuss the strategic direction of Talcott Resolution going forward, should the company decide to further diversify or alter its current strategy.
ERM is viewed favorably as the company works to further enhance its existing risk management capabilities. AM Best believes that Talcott Resolution’s current risk identification and mitigation strategies are appropriate and an adequate match to the level of risk attributed to its current business model.
The following Long-Term IRs have been affirmed with a stable outlook:
Talcott Resolution Life, Inc.—
— “bbb-” on $250 million 7.65% senior unsecured debentures, due 2027 (approximately $80 million outstanding)
— “bbb-” on $400 million 7.375% senior unsecured notes, due 2031 (approximately $63 million outstanding)
Hartford Life Institutional Funding— “bbb+” on program rating
— “bbb+” on outstanding notes issued under the program
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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.