KBRA Affirms Ratings of Aspida Holdings and its Core Insurance Operating Subsidiaries

KBRA affirms the A- Insurance Financial Strength Ratings (IFSRs) of Aspida Life Insurance Company (Aspida Life) and Aspida Life Re Ltd. (Aspida Life Re). KBRA also affirms the BBB Issuer Rating of Aspida Holdings Ltd. (Aspida Holdings). The Outlook for all ratings is Stable. Collectively, the companies are referred to as Aspida.

Key Credit Considerations

The ratings reflect Aspida’s sound risk-based capitalization, strong alignment with Ares Management Corporation (NYSE: ARES), seasoned management team, moderate financial leverage with strong debt coverage, evolving enterprise risk management framework, adequate management of interest sensitive liabilities, and emerging favorable trends in adjusted operating and spread income. As of December 31, 2023, both Aspida Life at a CAL RBC of 480% (2022: 473%) and Aspida Life Re at a BSCR coverage ratio of 214% (2022: 207%) were well within management’s target ranges for these metrics. KBRA believes that Ares is strongly committed to maintaining a meaningful investment in Aspida over the long-term. Ares invested considerable resources to launch Aspida, is nearing the completion of a significant third-party capital raise, and provides ongoing operational support, including via several proprietary analytical tools designed specifically to facilitate the management of Aspida’s business and give the group a competitive advantage in the asset-intensive life industry. Aspida has a strong management team and KBRA believes that recent new hires further strengthen the management profile. As of December 31, 2023, Aspida Holdings’ adjusted (excluding unrealized gains/losses) financial leverage was 22.5% which KBRA views as moderate. KBRA believes that traditional debt coverage analysis is less meaningful given the start-up nature of Aspida, but notes that the holding company had sufficient cash at the end of 2023 to service its debt, as well as significant dividend capacity at Aspida Life Re. Aspida has an adequate enterprise risk management framework that needs to mature and evolve to keep pace with planned growth. While Aspida’s products are subject to spread compression during periods of falling interest rates and disintermediation during periods of rising interest rates, KBRA believes that management has processes in place to adequately manage the risks as evidenced by favorable emerging trends in spread income and adjusted operating income quarter over quarter over the past twelve months.

Balancing these strengths is execution risk. Aspida is a start-up that has yet to reach scale and generate sufficient capital internally to support forecast new business origination. While KBRA acknowledges the significant progress the group has made to date in building its business, system and risk management enhancements to improve governance, modeling capabilities and regulatory reporting are ongoing in a dynamic market with competition from larger, brand-name competitors

Rating Sensitivities

Consistent internal generation of capital that supports planned growth, material favorable variance to forecasts provided to KBRA without a significant increase in risk profile, diversification of liabilities and/or a more balance distribution profile for direct sales and a sustained track record of sourcing reinsurance opportunities could result in a positive rating action.

Sustained dependence on capital contributions to attain forecasts, material negative variance to forecasts provided to KBRA, material deterioration in risk-based capitalization, lack of risk management development consistent with growth of the business, material increase in financial leverage and/or a material adverse change in risk profile could result in a negative rating action.

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Methodologies