Best’s News & Research Service - March 13, 2015 11:49 AM (EDT)
A.M. Best Assigns Ratings to Knighthead Annuity & Life Assurance Company
- March 13, 2015 11:49 AM (EDT)
Oldwick //BestWire// - A.M. Best has assigned a financial strength rating of B++ (Good) and an issuer credit rating of "bbb+" to Knighthead Annuity & Life Assurance Company (Knighthead). The outlook assigned to both ratings is stable. Knighthead is the wholly owned subsidiary of Knighthead Holdings Ltd. Both companies are domiciled in the Cayman Islands.
The ratings reflect Knighthead's anticipated opportunity in the offshore traditional fixed-annuity market, good initial risk-adjusted capitalization, favorable projected operating performance and an experienced management team. Knighthead has recently commenced marketing traditional fixed annuities to high net worth non-U.S. individuals and has recently signed its first distribution agreement with a major broker dealer. Knighthead is forecasting high sales growth in its business plan as it expands its distribution channels, coupled with strong expected investment returns by its investment manager, Knighthead Capital Management LLC (KHCM), which is an SEC-registered investment manager. KHCM utilizes a long/short non-levered strategy primarily focused on credit investing with a value-oriented philosophy, such as stressed and secured debt, senior secured debt and event-driven equity.
Partially offsetting factors are the concentration of the business profile in an interest-sensitive product line and an atypical investment strategy, with higher potential for volatility in returns and risk-adjusted capitalization. Knighthead will need to execute on its business plan and its target earnings are largely dependent on anticipated stronger than average investment spreads relative to expected crediting rates. Additionally, given the investment strategy, Knighthead is exposed to asset/liability duration mismatches. While KHCM has reported strong returns with favorable volatility in relation to its hedge fund peers and benchmarks, A.M. Best notes that the investment management firm was established in June 2008 and has a relatively short history for comparison.
As a newly established company, positive rating action could follow sustained strong investment returns and premium growth leading to stable or higher levels of reported risk-adjusted capitalization, and successful execution of the business plan with an increasing market profile over time. Conversely, the ratings could be lowered due to poor performance of the investment strategy resulting in unfavorable operating performance or a decline in risk-adjusted capitalization.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Rating New Company Formations
- Evaluating Country Risk
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center .
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