OLDWICK, N.J.--(A.M. Best Co. has placed under review with negative implications the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Commonwealth Annuity and Life Insurance Company (Commonwealth) and its subsidiary, First Allmerica Financial Life Insurance Company (FAFLIC) (both domiciled in Southborough, MA), both ultimately owned by The Global Atlantic Financial Group (Global Atlantic).
The rating actions follow the May 1, 2013 announcement that Commonwealth has signed a definitive agreement to purchase AVIVA plc’s (AVIVA) U.S. life insurance business through a reinsurance agreement. The transaction is contingent upon Athene Holding Ltd.’s (Athene) successful acquisition of AVIVA’s U.S. life insurance and annuity business, which is written by Aviva Life and Annuity Company and Aviva Life and Annuity Company of New York (together known as Aviva USA).
While the acquisition of Aviva USA is consistent with Commonwealth’s growth strategy, A.M. Best views the magnitude of this potential transaction as significant. As a result, there is uncertainty with respect to the impact on its balance sheet and financial metrics; thus, the ratings have been placed under review with negative implications. All ratings will remain under review pending A.M. Best's review of this acquisition, as well as any discussions concerning the integration plans to determine the transaction's overall impact on the company’s ratings.
The ratings also recognize the recent change in Commonwealth’s ownership structure and separation from The Goldman Sachs Group, Inc. (Goldman Sachs). Recently, Global Atlantic completed a successful private placement with a diversified investor base of over 1,000 shareholders, including Goldman Sachs, which will retain a minority stake. It is expected that Global Atlantic will maintain profitability and growth under this new ownership structure.
Offsetting rating factors include the loss of the Goldman Sachs brand and capital support as Global Atlantic will need to establish new brand awareness and implement certain infrastructure and systems capabilities as a stand-alone entity.
Concurrently, A.M. Best has assigned an FSR of A- (Excellent) and ICR of “a-” to Commonwealth Annuity and Life Reinsurance Company Limited (Commonwealth Re) (Bermuda). Consistent with the other life insurance subsidiaries of Global Atlantic, these ratings have been placed under review with negative implications.
The ratings assigned to Commonwealth Re reflect its role as an offshore captive reinsurance company for Global Atlantic’s life insurance business. The company reinsures approximately 70% of Global Atlantic's life insurance business mostly though assumed business from its affiliate, Commonwealth. Commonwealth Re is expected to provide added transaction flexibility for the group. A.M. Best views the initial capitalization in support of its assumed business as adequate, and there is an expectation of profitable growth.
Offsetting rating factors include Commonwealth Re’s large percentage of interest-sensitive and separate account liabilities, which may expose it to disintermediation risk and spread compression due to the continuing low interest rate environment.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology
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