Fitch affirms Signum Finance on positive mortality experience

by Artemis on July 22, 2013

Fitch Ratings has again affirmed the rating of Signum Finance Cayman Ltd. Series 2010-09, a mortality linked life insurance securitization transaction. The ratings agency cited the positive mortality experience, which remains below 100% of the actual-to-expected figure and well below the trigger level.

The Signum Finance Cayman Ltd. transaction is a life securitization type transaction which provides investment banking firm Goldman Sachs with a way to hedge the mortality risks associated with a defined block of life insurance. The novel mortality risk transfer transaction works through use of a CDS (credit default swap) type structure.

Signum Finance Cayman Limited issued $200m of notes and used the proceeds to purchase collateral in the form of 15-year unsecured bonds issued by Goldman Sachs. At the same time the SPV enters into a CDS agreement with Goldman Sachs as the swap counterparty.

Through this CDS Signum Finance Cayman Ltd. provides excess mortality protection on a defined block of U.S. level-term life insurance policies. Signum Finance would make payments to Goldman Sachs if the actual mortality experience of the defined block of life insurance exceeded a specified trigger level, while Goldman Sachs makes fixed payments to the SPV who passes that on to the investors as a coupon.

Fitch’s re-affirmation of the rating it applied to Signum Finance is based on two factors, the performance of the portfolio of life insurance policies which are referenced under the swap agreement and the rating of Goldman Sachs itself.

Firstly, given Goldman Sachs maintains its ‘A’ rating with a stable outlook. Fitch always considers Goldman Sachs when assessing the rating of this deal as Goldman Sachs is the guarantor to the deals swap counterparty Goldman Sachs International.

Secondly, Fitch says that the actual mortality experience on the insurance pool referenced within this deal, remains slightly below expectations. Fitch said that at less than 100% of the actual-to-expected mortality rate the notes remain; “Significantly below specified trigger levels and remains within range of the modeling expectations of ‘AA'”.

As a result of this assessment Fitch has affirmed the rating of the $200m notes issued by Signum Finance Cayman Limited series 2010-09 (Signum 2010-09) at ‘Asf’ with a stable outlook.

Read our previous coverage of this Signum Finance Cayman Ltd. transaction.

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