AM Best has revised the outlooks to negative from stable and affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of three members of FGH Parent LP, including two domiciled on the island.

The ratings apply to Bermudian-based Fortitude Reinsurance Company Ltd and Fortitude International Reinsurance Ltd, as well as to Fortitude Life Insurance & Annuity Company of Phoenix.

AM Best refers to them collectively as Fortitude Re.

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

The negative outlooks reflect pressure on the balance sheet strength assessment due to increasing liability risk. The long-tail nature of reserves introduce significant potential volatility to the group’s capital position.

Further negative rating action may occur if there were to be a material decline in risk-adjusted capitalisation or a deterioration in other balance sheet strength metrics as additional risk transactions are added.

The rating affirmations of Fortitude Re also reflect the group’s strategic importance to the greater organisation’s operations.

The ratings benefit from implicit and explicit support from the group’s parent holding company, FGH Parent LP.

The very strong balance sheet strength assessment considers Fortitude Re’s risk-adjusted capitalisation being at the strongest level, as measured by Best’s capital adequacy ratio, and AM Best’s expectation that Fortitude Re will maintain similar levels of capital strength consistently as the company executes transactions that may be significant in size and add materially to the company’s portfolio of invested assets and reserves.

AM Best believes that Fortitude Re possesses sufficient financial flexibility to source additional capital if needed to support its underwriting operations.

The overall balance sheet assessment of very strong also recognises Fortitude Re’s long-dated investment portfolio, which includes allocations to private and alternative investments.

AM Best notes volatility on operating earnings owing to the market environment and given the group’s longer-dated run-off liabilities.

The group’s operating performance metrics could vary meaningfully from year to year, also leading to balance sheet volatility. Over the longer term, AM Best expects that Fortitude Re will demonstrate adequate returns on capital.

In its business profile assessment of Fortitude Re, AM Best recognises that the group benefits from a quality management team that possesses significant experience in the open market as a run-off specialist.

AM Best will continue to monitor Fortitude Re’s progress as it executes transactions and materially adds to the group’s portfolio.

• AM Best has commented that the credit ratings of Lincoln National Corporation and its subsidiaries remain unchanged following the May 2, 2023, announcement that the company has entered into an agreement to reinsure a portion of its secondary guaranteed universal life, fixed annuities and MoneyGuard blocks of business to Fortitude Reinsurance Company Ltd., a Bermuda-based reinsurer.

The transaction reinsures 40 per cent of in-force SGUL business, 40 per cent of in-force FA business and 80 per cent of in-force MG business. The reinsurance deal is expected to close during second-quarter 2023.

The transaction is in line with LNC’s previously announced strategy to rebuild capital by pausing share buybacks, raising capital through preferred equity issuances and a potential block reinsurance transaction.

In November 2022, AM Best downgraded the ratings of LNC and its life/health subsidiaries and revised the outlooks to negative from stable due to a significant change in assumptions in the company’s universal life (UL) insurance block of business that resulted in a significant GAAP unlocking charge and a goodwill write-down of approximately $634 million related to its variable UL block of business.

In addition, risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio, declined due to a statutory capital charge of approximately $300 million that was recorded during fourth-quarter 2022 as part of the company’s UL assumption update. Risk-adjusted capital also was impacted negatively from equity market volatility in 2022.