Oct 2 () - Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of Athene Annuity & Life Assurance Company (Athene) at 'BBB+' and removed it from Rating Watch Negative. The Rating Outlook is Stable.
Athene was placed on Rating Watch Negative on July 13, 2012 following the company's announcement that it would be acquiring Presidential Life Corporation, and its wholly owned subsidiary, Presidential Life Insurance Company (Presidential Life). Since then, Fitch had further discussions with Athene management regarding operational and strategic plans and completed its review of Presidential Life.
Overall Fitch views this transaction as consistent with Athene's stated strategy with regard to the deployment of capital to grow its fixed annuity business. Additionally it provides Athene with a New York presence, completing the company's nationwide retail annuity platform and allowing it to expand its distribution capabilities.
Fitch believes Athene faces inherent execution risk with each new acquisition as well as concentration and pricing risk until the number of reinsured blocks within the organization is expanded and seasoned. Favorably, the company's successful integration of three large transactions in 2011 and 2012 provides a foundation for the Presidential transaction.
Upon close, Presidential Life will become a wholly owned subsidiary of Athene. Management expects to maintain a minimum RBC of 350%. At June 30, 2012, the RBC ratio was estimated at 373%, in excess of the minimum 350%.
Fitch views Athene's risk-based capitalization as adequate. Favorably, the company has modest financial leverage and no plans to introduce additional financial leverage in the near to intermediate term. The group's high total financing and commitments (TFC) ratio of 0.9x is due to leverage within a limited partnership interest in its investment portfolio.
Fitch will continue to monitor Athene's operating results on the reinsured blocks of fixed annuity business in relation to management's initial assumptions as well as the profitability of the company's retail annuity sales, which were re-launched in 2011. Athene's narrow focus on fixed annuities exposes the company to interest rate risk and results in above-average operating leverage. The company also has an above-average exposure to structured securities, in particular non-agency RMBS. Fitch believes these factors could significantly affect the company's earnings and capital in a severe, albeit unexpected, economic scenario.
Athene Holding Ltd. (AHL) owns a Bermuda-domiciled reinsurer, Athene Life Re Ltd. Due to reinsurance contracts between the various legal entities, AHL is viewed by Fitch as a group.
The key rating triggers that could result in an upgrade include: --Sustained maintenance of risk-based capital (RBC) above 400%; --Broad, sustained profitability and diversification and seasoning across its blocks of reinsured business.
The key rating triggers that could result in a downgrade include: --Decline in RBC below 300%; --Deterioration in the performance of reinsured blocks, resulting in run-rate operating losses for four consecutive quarters.
Additional information is available at '
'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Sept. 19, 2012). Applicable Criteria and Related Research: Insurance Rating Methodology (New York Ratings Team)