Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Moody’s now puts River Lake III on review for potential downgrade


We reported in May that Moody’s had placed River Lake IV, a Regulation XXX life insurance reserve relief deal issued by Genworth Financial, on review. Now they’ve announced that the same has happened with River Lake III, the previous deal from Genworth.

Both deals had residential mortgage backed securities in their investment portfolio which were obviously going to be affected by the economic downturn. The estimated probability of default on those securities has now increased as the expected credit losses on them has increased significantly.

The issues being experienced by the River Lake deals demonstrate the need for collateral to be of a non-correlated nature. Obviously RMBS are amongst the most correlated forms of assets and were probably a bad choice for a deal such as this. The securitization market is certainly not out of the woods yet and it will take some time for all affected deals to come to light.

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