Best’s News & Research Service - August 31, 2023 10:40 AM (EDT)
AM Best Assigns Issue Credit Rating to Weston2038 LLC Series Hannover, No.2 Variable Funding Credit-Linked Note
- August 31, 2023 10:40 AM (EDT)
Oldwick //BestWire// - AM Best has assigned a Long-Term Issue Credit Rating (Long-Term IR) of “a” (Excellent) to the $433 million, 6.00% Series Hannover, No. 2 variable funding credit-linked note (note), due July 1, 2043, issued by Weston2038 LLC (Weston2038), a Delaware limited liability company (issuer). The outlook assigned to 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 subject insurance business underlying this transaction is a specified block of universal life secondary guarantee policies ceded by Transamerica Life Insurance Company to Wilton Reassurance. Wilton Reassurance retrocedes the subject business to Redding Re 3 on a coinsurance funds withheld basis. The note is used to support excess reserves for that subject business on Redding Re 3’s balance sheet.
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 Life Re America (Bermuda)) to provide liquidity for any redemption/monetization of the note.
The assigned rating represents AM Best’s current opinion as to the issuer’s ability to meet its financial obligations to the noteholders when due. The assigned rating primarily takes into consideration the following: Hannover Life Re America (Bermuda)’s Long-Term Issuer Credit Rating (Long-Term ICR) of “aa” (Superior) as the swap counterparty to Weston2038; Wilton Reassurance’s Long-Term ICR of “aa-” (Superior), as the entity provides support to the 250% Company Action Level Risk-Based Capital for Redding Re 3; netting arrangements among transaction parties; the absence of reserves or funds at Weston2038, except funds provided by Redding Re 3; and potential legal risks as it relates to enforceability of the various transaction agreements and potential consolidation issues of various parties.
The Long-Term IR could be upgraded, downgraded or the outlook revised if material changes occur in the financial condition and ratings of Hannover Life Re America (Bermuda) or Wilton Reassurance.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive .
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