AM Best rates Weston2038's captive-related funding note

AM Best has assigned a long-term issue credit rating of “a” to the $433 million, 6.00% Series Hannover, No. 2 variable funding credit-linked note, due July 1, 2043, issued by Weston2038, a Delaware limited liability company.

The outlook assigned to this credit rating is stable.

AM Best said that: “The note is in consideration of a variable funding surplus note issued by Redding Reassurance Company 3 (Redding Re 3), a Missouri-domiciled special purpose financial captive reinsurer and a direct wholly owned subsidiary of Wilton Reassurance Company. 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) to provide liquidity for any redemption/monetisation of the note.”

The rating agency said that the assigned rating represents its 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” as the swap counterparty to Weston2038; Wilton Reassurance’s long-term ICR of “aa-”, 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.