Rating agency Moody’s Investors Service has affirmed the ratings on the $800m of life insurance-linked securities (ILS) which were issued by Northwind Holdings LLC., on behalf of sponsoring life insurer Unum Group.
The Northwind transaction, which was the first life insurance-linked securitization of its kind when it came to market back in 2007, saw Unum securitize an $800m closed block of individual income protection life insurance through Northwind Holdings LLC.
The Northwind transaction was seen as a way for sponsor Unum to release excess capital within its business and subsidiaries and was considered akin to an embedded value life securitization, allowing the value within the subject business to be realised.
The Northwind notes had their ratings downgraded in 2009 because of issues with the financial guarantor for the transactions, monoline insurer MBIA Inc.
MBIA is guarantor for the timely payment of scheduled interest and also repayment of principal at maturity for both transactions and the downgrade of MBIA impacted the Northwind life ILS transactions rating.
Now, Moody’s notes that “The Baa1(sf) rating of the notes reflects this modified “credit substitution” approach and is now equal to the underlying rating of the notes without incorporating the benefit of a financial guaranty policy provided by MBIA Insurance Corporation.”
Moody’s Senior Vice President Scott Robinson commented on the rating; “The affirmation reflects deal performance that is in line with our expectations of the underlying reinsurance cash flows as well as the performance of the invested assets backing the liabilities.”
Moody’s added that there has been minimal asset impairments, perhaps surprising in the recent financial market climate. In fact, Moody’s notes that exposure to real estate-related structured finance securities within the assets has enabled the notes to avoid some of the investment pressures faced by other life insurance-linked securities in recent years.
So it seems that prudent investment decisions taken in the past have worked out for Unum’s Northwind transaction, helping the notes to avoid some of the financial market pressure which has hit other investment portfolios in the ILS and insurance space.