Rating agency A.M. Best has affirmed the ratings on the $800m tranche of life insurance-linked securities (ILS) issued by Northwind Holdings LLC., on behalf of sponsoring life insurer the 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 through a reinsurance agreement and issuance of this tranche of notes.
The Northwind notes had their ratings downgraded in 2009 because of issues with the financial guarantor for the transactions, monoline insurer MBIA Inc. which had been downgraded previously.
A.M. Best explains that in affirming the note it takes into consideration “the adequacy of the excess cash flows at Northwind Re available to be transferred as dividends to Northwind Holdings to service the notes; the ability to meet or exceed certain benchmarks (e.g., principal note payment, dividend distribution, reserve balances) relative to its plan and forecast; the performance of its investment portfolio, which primarily consists of investment-grade securities and is the primary source of funds to pay ongoing claims; and Unum’s operating subsidiaries’ current financial strength ratings of A (Excellent) and issuer credit ratings of “a”.”
It does not however take into consideration the “payment assurance or support provided by MBIA Insurance Corporation” to honour its obligations under the deal in its rating decision.
So currently A.M. Best remains comfortable with the stability of these notes and the Northwind life ILS transaction as a whole, which will please investors that hold any of the tranche.
Back in July we wrote that investment decisions taken with the assets related to the transaction had helped encourage Moody’s to re-affirm the rating, as the rating agency highlighted that investment decisions that had been made for the Northwind deal had helped this transaction avoid some of the pressure that other life ILS deals had felt on the asset portfolio side.