AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermudian-based Aspida Life Re Ltd and Aspida Life Insurance Company of North Carolina.

The outlook of these credit ratings is stable.

The ratings reflect Aspida Re’s and Aspida Life’s balance sheet strength, which AM Best assesses as very strong, as well as their adequate operating performance, neutral business profile and appropriate enterprise risk management.

The ratings of Aspida Re and Aspida Life consider the strength of their balance sheets and overall liquidity sources, which have been bolstered by significant capital contributions from Ares Management Corporation, a publicly traded, leading global alternative investment management firm with over $350 billion of assets under management as of December. 31, 2022.

AM Best expects additional capital contributions from Ares and other third-party investors to fund the current growth strategy of continued writing of retail annuity business at Aspida Life and acquiring new blocks of business and entering new reinsurance flow deals through Aspida Re.

Aspida Re currently maintains the strongest level of risk-adjusted capitalisation, as measured by Best’s capital adequacy model, while Aspida Life’s BCAR scores are above the level required for an assessment of very strong.

Aspida Re has expanded its business profile over the past year with several new block acquisitions and reinsurance flow deals, including one with a prominent Japanese life insurance company.

While GAAP accounting rules have resulted in significant volatility in reported earnings, the underlying profitability of Aspida Re’s blocks of business have generally been favourable and interest rate spreads have improved with the rise in investment yields and the repositioning of investments over the past year.

Aspida Re and Aspida Life also benefit from a sound enterprise risk management approach with a well-developed framework and significant controls in place to mitigate unforeseen risks. The company also conducts extensive stress testing as required by regulators.

While Aspida Re has expanded its business profile over the past year, it remains concentrated in interest-sensitive annuities, which currently account for all of its business.

In addition, while AM Best acknowledges the favourable track record and extensive investment experience of Ares, exposure to less liquid and somewhat higher risk investments in Aspida Life and Aspida Re’s general accounts are somewhat elevated compared with industry averages.

While the companies’ assets and liabilities are well-matched, the large number of unrealised losses experienced industrywide due to the rapid rise in interest rates is an additional concern.

Aspida Life began marketing multiple annuity products through a diverse distribution platform that includes independent marketing organisations, banks and broker-dealers in mid-2022, and generated statutory net written premiums of over $600 million at year-end 2022.

Aspida Life and Aspida Re benefit from the systems, management team and operational and risk management functions that have been established within the Aspida organisation.

As with any new organisation, both companies face execution risks, which are magnified by the increasing competitive market environment in which they operate.

AM Best will continue to monitor the companies’ ability to execute on their current business plans without any material adverse deviation from expected capitalisation levels and earnings expectations.