Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Signum Finance ratings affirmed as mortality experience remains well below trigger


Fitch Ratings has reaffirmed the ratings of Signum Finance Cayman Ltd. Series 2010-09, a life securitization type transaction which provides Goldman Sachs with a mortality hedge for a defined block of life insurance. The latest assessment was based on two factors; the rating of issuer Goldman Sachs, as guarantor to the deals swap counterparty Goldman Sachs International, and the excess-mortality experience of the defined block of level-term life insurance policies which were involved in the deal.

This novel mortality risk transfer transaction works through use of a CDS (credit default swap) type structure. Signum Finance Cayman Limited was established to issue $200m notes and used the proceeds of the sale of the notes 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 arrangement the SPV will provide excess mortality protection on a defined block of U.S. level-term life insurance policies. Under the terms of the deal, Signum Finance would make payments to Goldman Sachs if the actual mortality experience of the defined block of life insurance exceeds a specified trigger level, while Goldman Sachs makes fixed payments to the SPV who passes that on to the investors as a coupon.

There has been no change to Goldman Sachs rating since Fitch last downgraded this deal due to its links to the company. That was a downgrade caused by the wider financial market issues around the world which were the reason for Goldman Sachs downgrade, and with their involvement in the transaction so intrinsic they are seen as the largest risk to the deal. So no change to the Signum Finance rating was necessary because of this risk factor.

The second highest risk factor to the transaction is the mortality experience of the defined block of level-term life insurance policies under the excess mortality swap agreement. The cumulative actual-to-expected mortality experience has slightly exceeded 100% according to Fitch Ratings, but is significantly below the specified trigger levels and remains within range of the modeled expectations.

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

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