Protective Life’s ILS Ratings Pulled, but Unum Not Scared of its “Shadow”
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Protective Life’s ILS Ratings Pulled, but Unum Not Scared of its “Shadow”

Moody’s withdrew its credit rating on hundreds of millions of Protective Life insurance linked securities (ILS) while at the same time confirming the credit worthiness of a similar structure issued by Unum.

Both actions reveal the consequences for issuers as the credit rating agency rethinks the life securitization market in wake of the collapse of financial guarantors.

According to an announcement Friday, the rating agency said it had withdrawn the ratings on Golden Gate II, a $575 million securitization of Reg AXXX reserves attached to universal life polices issued by Alabama-based Protective Life.

The same day, the credit rating agency announced it had confirmed a Baa1 rating for a $95 million securitization issued by Unum dubbed Tailwind Holdings.

The key difference between the two ratings actions is that Tailwind agreed to publish its underlying “shadow rating” after MBIA — which provided a credit insurance wrapper around the Tailwind securitization — fell to junk status.

In May of last year, Moody’s announced that it would withdraw the ratings on ILS structures “wrapped” by financial guarantors if the credit insurers’ rating fell below investment grade and there were no public “underlying shadow rating” to review.

Shadow ratings are non-public reviews conducted by the sponsor to gauge the credit worthiness of a fixed income instrument where there is little or no secondary market.

After a review, Moody’s said in a statement that Tailwind’s underlying insurance risk was consistent with the “original rating expectations.”

The statement added that Tailwind’s investments were primarily in investment grade corporate securities with little exposure to structured finance securities that have impacted other ILS vehicles.

“The Baa1 rating also recognizes linkages between Tailwind Holdings and the operating companies of Unum Group, as well as the sensitivity of the modeled losses to certain actuarial assumptions,” said Moody’s analyst Shachar Gonen.

Tailwind is the largest shareholder of Tailwind Re, a South Carolina-based reinsurance captive set up to fund a portion of Unum’s disability claim reserves.

Moody’s did not comment on withdrawing its ratings on Golden Gate II, which was issued in 2007 and was structured as a special purpose reinsurer domiciled in South Carolina.

The last rating action on Golden Gate II was in February, when it was downgraded to B3 from Baa1 and placed under review.

Earlier this month over $2.5 billion in ILS securities issued by Genworth Financial became first to have its ratings withdrawn as a result of the Moody’s policy on wrapped ILS.

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