Fitch affirms Resolution Life ratings
Fitch Ratings has affirmed the long-term issuer default ratings of Resolution Life Group Holdings and RLGH Finance Bermuda at ‘BBB’.
In addition, Fitch has affirmed the insurer financial strength rating of Security Life of Denver Insurance Company and Resolution Re at ‘A-’.
The rating outlook is stable.
The ratings consider Resolution Life's strong company profile and capitalisation and strategy of acquiring run-off blocks globally. The ratings also consider the highly competitive environment and inherent execution risk in the acquisition of run-off blocks.
Key rating drivers include the strong company profile and a half a billion dollar investment by Blackstone.
Fitch said the company has an experienced management team and track record through past vehicles acquiring run-off blocks favourably.
Resolution Life's current platform is global, distinct from past iterations. Fitch views Resolution Life's geographic and risk diversification favourably and considers each of the three platforms across the US, Australasia and Bermuda as core to Resolution Life.
Adjusted shareholders’ equity was $4.5 billion, while assets totalled $78 billion as of the first quarter of 2023.
Security Life of Denver Insurance Company in the US and Resolution Re in Bermuda are viewed as core to each other, while Resolution Life Australasia is considered core to the enterprise, but rated distinctly from the other entities.
The Bermuda Monetary Authority serves as the group regulator, with Resolution Re serving as the designated insurer. All three platforms are material to Resolution Life's growth plan and cash flows. The company continues to invest in, and has completed recent acquisitions in, each platform.
Blackstone is also assisting with raising another $2.5 billion, bringing the equity capital base to approximately $7.6 billion.
The capital will be raised through a newly formed vehicle with Blackstone as the general partner and the majority of existing investors rolling their investments into the vehicle.
The change of control is expected to occur in the second half of 2023. In relation to the new strategic partnership, Resolution Life becomes Blackstone's exclusive global partner for in-force transactions, including reinsurance.
Blackstone will initially manage up to $25 billion of Resolution Life's existing private assets in the first year. Assets will be rotated into asset classes managed by Blackstone over time, with total private assets managed by Blackstone expected to represent $60 billion over the next six years.
Through the first quarter, over $14 billion of assets were rotated by Blackstone into higher yielding strategies across platforms.
Fitch expects a marginal increase in investment risk, but for it to be manageable. Favourably, Resolution will benefit from Blackstone's origination capabilities and investment management expertise.
Resolution Life is currently making material investments in technology, including migrating legacy systems to the cloud and implementing a low code and artificial-intelligence-enabled core insurance processing through an agile working model.
The company expects the project will complete by year-end 2024, with ultimate outcomes including enhanced efficiencies and improved future deal economics. One of SLD's recent reinsurance transactions included administration, which will enable Resolution Life to leverage its investments.
Resolution Life scores extremely strong in Fitch’s factor-based Prism model, which benefits from the strength of its capital position in Australasia and its large block of participating policies.
SLD’s US Prism score was strong in 2022, consistent with the prior year. SLD is proportionately one of the largest users of captive reserve financing in Fitch’s rated universe, with excess reserve financing representing over 2.5x its total adjusted capital as of year-end 2022.
Resolution Life’s capital levels exceed its target levels and expectations for the current rating level, including the group's Bermuda Solvency Capital Ratio of 180 per cent as of year-end 2022.
Financial leverage was 29 per cent as of the first quarter of 2023 and is expected to rise over the near term. However, financial leverage will improve following the equity raise and is expected to be in the 25-30 per cent range over the long term.
Fitch views Resolution Life's financial flexibility as strong and it will benefit from Blackstone’s capital-raising abilities.
Resolution Life is privately owned by investors, approximately 75 per cent of which are sovereign investment funds, pension funds and/or insurance companies, which typically have long-term investment horizons. Debt is largely short-term bank loans.
Blackstone’s equity will represent between a 5 per cent and 10 per cent stake in Resolution Life.
Fitch expects Resolution Life to implement a more varied funding structure, including longer-term debt and hybrids over time.