KBRA Affirms Ratings of Aspida Life and Aspida Holdings
11 Jul 2023 | New York
KBRA affirms the A- insurance financial strength rating of Aspida Life Insurance Company (Aspida Life) and the BBB issuer rating of Aspida Holdings Ltd. (Aspida Holdings), collectively referred to as Aspida. The Outlook for all ratings is Stable.
Aspida Life is a Michigan domiciled life insurance company licensed in forty-eight states and the District of Columbia with separate account authority in most states. The company began writing retail annuity new business in June 2022. Aspida Life is a subsidiary of Aspida Holdings, a Bermuda exempted company. Ares Management Corporation (NYSE: ARES) is the Ultimate Controlling Party of Aspida.
Key Credit Considerations
The ratings reflect Aspida Life’s sound risk-based capitalization, high credit quality investment portfolio, strong liquidity profile, successful launch of its retail annuity business, seasoned management team, and adequate enterprise risk management. At end-2022, Aspida Life’s RBC (CAL) ratio was 473%. As the company scales its business, KBRA expects Aspida Life to maintain its RBC (CAL) in the 400% range. At end-Q1 2023, Aspida Life’s investment portfolio of $1.5 billion consisted of 97% cash/cash equivalents and investment grade fixed income securities with a de minimis amount of high yield bonds, equity, and alternatives. At end-2022, the average credit quality of the fixed income portfolio was within the single-A category with a duration of 2.7 years. KBRA believes that the company’s investment portfolio is highly liquid, presents low investment risk, and was well matched to the company’s liability duration of approximately 5.0 years at end-2022. By end-2022, Aspida Life sold nearly 4,400 annuities at an average crediting rate of 4.66% generating $627 million in revenue, well ahead of plan. KBRA views Aspida Life’s management team as experienced in the annuity market. All have distinguished track records leading companies to success in prior insurance or related industry roles. Aspida Life has a formal enterprise risk management framework that KBRA believes is adequate given the company’s current stage of development. KBRA expects the framework to evolve and mature to keep pace with the company’s growth.
The ratings also reflect Aspida Holdings’ strong operational alignment with and access to capital through Ares as well as conservative financial leverage. KBRA believes that Ares is well aligned with, and strongly committed to, the success of Aspida, having invested a significant amount of its own capital and established Ares Insurance Solutions to provide Aspida a competitive advantage via asset management, asset-liability support, capital management and corporate development. During 2022, $150 million capital contribution was made to Aspida Life to support the launch of retail sales and manage capital strain. In November 2022, Aspida Holdings established, and drew on, a revolving credit facility resulting in nominal financial leverage of 3.2% at end-2022. In May 2023, the company issued $80 million in non-voting redeemable cumulative perpetual preferred shares. On a pro forma basis, this debt issuance increased debt to capital at end-2022 to 13.7%. KBRA views Aspida Holdings’ financial leverage as conservative.
Balancing these strengths are execution risk, exposure to interest sensitive liabilities, and a competitive retail annuity marketplace. While Ares has a long track record of building successful businesses as well as investing insurance company assets, KBRA believes that Aspida still faces execution risk. KBRA views Aspida Life’s growth plans as ambitious and therefore the build out of systems and risk management enhancements to improve governance, modeling capabilities and regulatory reporting in line with growth as critical to long term success. Aspida Life’s key products are concentrated in interest sensitive fixed rate annuities. Financial projections and targeted spreads shared with KBRA suggest favorable management of crediting rates and earned spreads. The retail annuity market is dominated by several large competitors that benefit from scale and brand recognition, which may challenge Aspida Life’s ability to execute its business plan.
Rating Sensitivities
Establishment of meaningful market share in the retail annuity market with demonstrated scalability of operations or actual results exceeding plan without material capital strain could result in a positive rating action.
An inability to reach scale, material change in risk profile, including lack of risk management development consistent with growth of the business, significant deterioration in risk-based capitalization, or a material increase in financial leverage at the holding company could result in a negative rating action.
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