AM Best affirms credit rating of Weston2038’s credit-linked note

AM Best has affirmed the long-term issue credit rating of “a” (Excellent) of the $846m, 6.00% variable funding credit-linked note, due July 1, 2038, issued by Weston2038, a Delaware limited liability company. The outlook of this credit rating is stable.

The note is in consideration for 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 variable funding surplus note is used to support excess reserves for a specified block life business policies ceded by Wilton Reassurance on a coinsurance basis to Redding Re 3.

Redding Re 3 issued a 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 with Hannover Life Reassurance Company of America to provide liquidity for any redemption/monetization of the note.

The rating action represents AM Best’s current opinion as to the issuer’s ability to meet its financial obligations to the noteholders when due. The rating primarily takes into consideration the following: Hannover Re Bermuda’s long-term issuer credit rating of “aa” (Superior) as the swap counterparty to Weston2038; netting arrangements among transaction parties; no reserves or funds at Weston2038, except reliance on funds provided by Redding Re 3; and potential legal risks as it relates to enforceability of the various transaction agreements.

The rating could be upgraded or downgraded and/or the outlook revised if material changes occur in the financial condition and ratings of Hannover Re Bermuda.