A.M. Best Reports Ratings of ACE Tempest Life Reinsurance and ACE Life Insurance Company [Health & Beauty Close – Up]

A.M. Best Co. reported that it has affirmed the financial strength rating (FSR) of A+ and issuer credit rating (ICR) of "aa" of ACE Tempest Life Reinsurance (ATLRE) (Bermuda).

Concurrently, A.M. Best noted that it has affirmed the FSR of A- and ICR of "a-" of ACE Life Insurance Company (Stamford, CT). The outlook for all ratings is stable.

The rating affirmations for ATLRE reflect its favorable capitalization on both an absolute and risk-adjusted basis, primarily because of excess capital and earnings from its property/ casualty subsidiary, a history of favorable, albeit recently lower operating performance on a consolidated basis and modeling capabilities. Additionally, the Company said that the ratings reflect the earnings diversification of ATLRE's property/casualty subsidiary and overall investment portfolio.

A.M. Best noted that partially offsetting these positive rating factors is the unfavorable pricing environment that resulted from the economic downturn in recent years; equity market volatility associated with minimum guarantees and annuitization risk in ATLRE's reinsured products, particularly in a prolonged low interest rate environment; and the relatively modest scale of the company's life reinsurance operations. ATLRE is currently not active in the life/ annuity reinsurance space. A.M. Best notes that adverse movements in the equity markets, coupled with the ongoing low interest rate environment, may continue to negatively impact the company's operating performance and capitalization levels due to potential reserve increases for its variable annuity reinsurance blocks. A.M. Best notes that ATLRE's variable annuity block remains subject to policyholder behavior execution risk from lower than expected lapses as well as the potential for higher than expected annuitization rates on reinsurance contracts that are currently in the money.

Although a very limited contributor to the ACE group of companies, the Company added that the affirmation of ACE Life Insurance Company's ratings realizes its stable capitalization along with a very conservative investment portfolio and adequate liquidity. Offsetting rating factors include its nominal scope of operations and business profile, which is currently in run off.

While A.M. Best believes that ATLRE and ACE Life Insurance Company are well positioned at their current rating levels, the Company said that positive rating actions could occur for ATLRE if there is continued operating performance that outperforms its peers over time.

A.M. Best would need to see a significant shift in the strategic value of ACE Life Insurance Company's operations before any positive rating actions would be considered. Factors that could lead to negative rating actions include operating performance falling short of A.M. Best's expectations or an erosion of surplus that causes a decline in risk-adjusted capital to a level that no longer supports the current ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process.

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