AM Best Downgrades Credit Ratings of Lifetime Income Limited; Maintains Under Review With Negative Implications Status
SINGAPORE–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating to B- (Fair) from B (Fair) and the Long-Term Issuer Credit Rating to “bb-” from “bb” of Lifetime Income Limited (LIL) (New Zealand). Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings).
The ratings reflect LIL’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management.
These ratings were placed under review with negative implications on 5 November 2020, following regulatory licence conditions imposed on the company by the Reserve Bank of New Zealand (RBNZ), which require LIL to hold additional capital margins in excess of existing regulatory minimums to better withstand severe adverse scenarios that might occur in the future. The current low interest rate environment, together with heightened market volatility and the uncertainty of COVID-19 contributed to the requirement to hold more capital. These licence conditions also followed volatility in the company’s regulatory solvency position, with breaches of the minimum solvency margin identified in fiscal-year 2020. Subsequently, LIL’s parent group, Retirement Income Group Limited (RIG), initiated a capital raising exercise in late 2020.
The under review with negative implications status was maintained on 22 January 2021, as RIG had been unable to raise sufficient new capital to meet the additional regulatory capital requirements of the licence conditions at LIL, and while the company was considering alternative regulatory capital options, in consultation with the RBNZ and the Financial Markets Authority (FMA). AM Best notes that during this period, the Lifetime Income Fund (LIF) has been closed to new investments from new and existing policyholders.
The latest rating actions follow a communication on 29 March 2021 to LIL’s variable annuity policyholders with investment holdings in the LIF to advise that fund will be wound up. These policyholders have been given the option to either transfer their investment to an alternative fund with income payments not supported by an insurance guarantee, or have their account balances returned to them. In light of the LIF wind up, policyholders are expected to receive a supplementary payment to recognise the loss of the income guarantee currently provided by LIL. The RBNZ, supported by legal and actuarial advice, is considering the value of this supplementary payment. The completion of the LIF wind up is expected to occur in early May 2021.
The rating downgrades reflect a deterioration in AM Best’s view of LIL’s business profile assessment. LIL’s core product offering includes the provision of an insurance guarantee for investors in the LIF. As such, AM Best views the closing of this fund and the variable annuity product associated with it as having a material negative impact on LIL’s business volume and profile of LIL. Furthermore, LIL’s unit-linked and fixed annuity portfolios are also currently in run-off.
The maintaining of the under review with negative implications status reflects continued uncertainty over the company’s prospective balance sheet strength, including the materiality of the supplementary payment to be made to policyholders, which remains undetermined at this time, and LIL’s ability to comply with its licence conditions during the run-off of its liabilities.
The ratings will remain under review until AM Best can fully assess the impact of these factors on LIL’s balance sheet strength fundamentals.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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