Unum’s outstanding Northwind insurance-linked securities (ILS) have ben affirmed, as the performance of the first-of-its-kind deal is now deemed in line with expectations by rating agency Moody’s.
The Northwind life ILS transaction was the first life insurance-linked securitization of its kind, when it was issued back in 2007.
The Northwind transaction saw Unum securitize an $800m closed block of individual income protection life insurance, both active and disabled life reserves, through Northwind Holdings LLC, using captive reinsurer Northwind Re to enter into the necessary reinsurance agreements.
The deal was seen as a way for Unum to release excess capital from within its business and subsidiaries, realising some of the value of the book of life policies upfront and so very similar to an embedded value life insurance securitization.
By entering into reinsurance agreements with Northwind Re and the issuance of the notes by Northwind Holdings, Unum effectively collateralized and recognised value within its income protection business upfront of the policies maturing.
But the Northwind life ILS notes did not have an easy run, having their ratings downgraded in 2009 because of issues related to the financial guarantor for the transactions, monoline insurer MBIA Inc. which had been downgraded itself.
The rating agencies had regained some confidence in the Northwind deal, as investment decisions taken with the assets underlying the transaction were viewed as positive in helping the notes maintain their payments and reinsurance cash flows continue unhindered.
Moody’s clearly remains confident in the transaction in the wake of these investment decisions, as it said yesterday that it was affirming the rating on the notes, reflecting “Deal performance that is in line with our expectations of the underlying reinsurance cash flows, including the performance of the invested assets backing the liabilities.”
$245 million of the $800 million of notes remain outstanding, as the rest have been paying down as expected by Moody’s, the rating agency said.
Moody’s affirmed its Baa1(sf) senior secured debt ratings on the life insurance-linked securities of Northwind Holdings, LLC, saying that this rating is now “equal to the underlying rating of the notes without incorporating the benefit of a financial guaranty policy provided by MBIA Insurance Corporation,” suggesting that the notes can now stand alone in the eyes of the rating agency without needing to consider the financial guarantor.