Moody's downgrades Lincoln Benefit

Last week's news of Allstate entering into an agreement with Resolution prompts the move

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Moody’s Investor Service (Moody’s) has downgraded the insurance financial strength of Lincoln Benefit Life Company (Lincoln) to Baa1 from A1.

The downgrade is a result of last week’s announcement that Lincoln, a wholly-owned subsidiary of Allstate Life Insurance Company (Allstate Life), its self a subsidiary Allstate Insurance Company (Allstate), will be sold to Resolution Life Holdings Inc. (Resolution) for $600 million in a transaction expected to close during the second half of the year.

The low interest rate environment is prompting companies to shed their annuity businesses in order to prop up sagging balance sheets.

And that it will.

Moody’s expects the transaction to generate more than $350 million of statutory profit while simultaneously freeing up a considerable amount of regulatory capital. However, Moody’s feels that capital will not benefit Lincoln or Allstate Life as Allstate’s current capital strategy dictates keeping relatively low levels of capital in its life operating subsidiaries.

The jettisoning of Lincoln from Allstate Life forced Moody’s to examine the company on its fundamental standalone credit profile, without benefitting from the Allstate brand. This, in turn, resulted in the downgrade as Moody’s feels the company has a weak business profile due to relatively low capital levels and interest-sensitive liabilities written by non-proprietary distribution.

Moody’s does not see a bright future for Lincoln as indicated with its negative outlook. The credit ratings agency views Resolution, an aggregator in the life insurance and annuity sector, as inclined to aggressively manage Lincoln’s capital once the transaction closes. 

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