KBRA Affirms Ratings of Aspida Holdings Ltd. and its Insurance Operating Subsidiaries
28 Sep 2023 | New York
KBRA affirms the A- insurance financial strength ratings (IFSRs) of Aspida Life Insurance Company (Aspida Life) and Aspida Life Re Ltd. (Aspida Re). KBRA also affirms the BBB issuer rating of Aspida Holdings Ltd. Collectively the companies are referred to as Aspida. The Outlook for all ratings is Stable.
Key Credit Considerations
The ratings reflect Aspida’s strong overall operational alignment with and access to capital through Ares Management Corporation (NYSE: ARES), conservative holding company financial leverage, sound risk-based capitalization at both operating companies, seasoned management team, and adequate enterprise risk management framework. KBRA believes that Ares is strongly committed to the success of Aspida through significant investments of its own capital and the establishment of Ares Insurance Solutions to provide Aspida a competitive advantage via asset sourcing, asset-liability management, capital management and corporate development. As of June 30, 2023, through a combination of Ares and third-party capital providers, a total of $933 million has been contributed to the operating companies to support growth. In November 2022, Aspida Holdings established a $20 million revolving credit facility. In June 2023, the revolving credit facility line was increased to $50 million. In May 2023, the company issued $80 million in non-voting redeemable cumulative perpetual preferred shares. On an adjusted (excluding unrealized gain/loss on fixed income and equity assets) consolidated US GAAP basis, debt to capital as of June 30, 2023, is 12.3%. KBRA views Aspida Holdings’ financial leverage as conservative. At end-2022, Aspida Life’s RBC (CAL) ratio was 473% while Aspida Re’s BSCR coverage ratio was 207%. As Aspida scales its business, KBRA expects the operating companies to maintain their risk-based capital ratios in the 400% and 200% ranges, respectively. The executive management teams across the Aspida organization have a wealth of experience and demonstrated track records in prior annuity (re)insurance or related-industry roles. The addition of several new hires in key roles during 2022 and year-to-date 2023 further strengthens the organization, in KBRA’s opinion. Aspida 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. Balancing these strengths are execution risk, exposure to interest sensitive liabilities, and competitive annuity (re)insurance markets. While Ares has a track record of building successful businesses as well as investing insurance company assets, KBRA believes that Aspida still faces execution risk. KBRA views Aspida’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 are critical to long term success. Financial projections and targeted spread income shared with KBRA suggest favorable management of crediting rates at Aspida Life and appropriate downside protection structured into Aspida Re treaties. Both the annuity insurance and reinsurance markets are dominated by large competitors that benefit from scale and brand recognition, which may challenge Aspida’s ability to execute its business plan.
Consistent achievement of forecasts provided to KBRA, diversification of liabilities and successful development of its retail and reinsurance platforms over the medium term could result in a positive rating action.
Material underperformance relative to forecasts, inability to reach scale, material adverse change in risk profile including lack of risk management development consistent with growth of the business, material deterioration in risk-based capitalization at the operating companies or a significant increase in holding company financial leverage could result in a negative rating action.
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