Recipient email addresses will not be used in mailing lists or redistributed.
Use semicolon to separate each address, limit to 20 addresses.
characters you see
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Already a customer?
Don't want to see this again?
Accept our to continue to Moodys.com:
AND SCROLL DOWN!
By clicking “I AGREE” [at the end of this document],
you indicate that you understand and intend these terms and conditions to be
the legal equivalent of a signed, written contract and equally binding, and
that you accept such terms and conditions as a condition of viewing any and all
Moody’s information that becomes accessible to you [after clicking “I AGREE”] (the
“Information”). References herein to “Moody’s” include Moody’s
Corporation, Inc. and each of its subsidiaries and affiliates.
Terms of One-Time Website Use
you have entered into an express written contract with Moody’s to the contrary,
you agree that you have no right to use the Information in a commercial or
public setting and no right to copy it, save it, print it, sell it, or publish
or distribute any portion of it in any form.
acknowledge and agree that Moody’s credit ratings: (i) are current opinions of
the future relative creditworthiness of securities and address no other risk; and
(ii) are not statements of current
or historical fact or recommendations to purchase, hold or sell particular
securities. Moody’s credit ratings and
publications are not intended for retail investors, and it would be reckless
and inappropriate for retail investors to use Moody’s credit ratings and
publications when making an investment decision. No
warranty, express or implied, as the accuracy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Moody’s credit
rating is given or made by Moody’s in any form whatsoever.
3. To the extent permitted by law, Moody’s and its directors,
officers, employees, representatives, licensors and suppliers disclaim
liability for: (i) any indirect, special, consequential, or incidental losses
or damages whatsoever arising from or in connection with use of the
Information; and (ii) any direct or compensatory damages caused to any person
or entity, including but not limited to by any negligence (but excluding fraud
or any other type of liability that by law cannot be excluded) on the part of
Moody’s or any of its directors, officers, employees, agents, representatives,
licensors or suppliers, arising from or in connection with use of the
4. You agree to read [and
be bound by] the more detailed disclosures regarding Moody’s ratings and the
limitations of Moody’s liability included in the Information.
5. You agree that any disputes relating to this agreement or your use of
the Information, whether sounding in contract, tort, statute or otherwise,
shall be governed by the laws of the State of New York and shall be subject to
the exclusive jurisdiction of the courts of the State of New York located in
the City and County of New York, Borough of Manhattan.
29 Jun 2009
Approximately $750 million of securities affected
New York, June 29, 2009 -- Moody's Investors Service announced that it is continuing its review of
the ratings of $750 million of insured insurance-linked
securities issued out of a series of trusts ("Trusts") associated with
River Lake Insurance Company III ("River Lake III"),
but changing the direction of the review to possible downgrade from direction
uncertain. River Lake III is sponsored by and wholly-owned
by Genworth Life and Annuity Insurance Company (GLAIC, A2 for insurance
financial strength/negative outlook), which is ultimately wholly-owned
by Genworth Financial, Inc. (Genworth, NYSE:
GNW, senior debt at Baa3/negative). The change in review
direction affects $250 million of INC Term Securities, Series
RLIII 2006-1 ("Term Securities", senior debt at A2) due 2036
and five separate $100 million of INC Money Market Securities,
Series RLIII 2006-1 through 5 (collectively referred to as "MM
Securities", senior debt at A3) each due 2036. The Term Securities
are issued out of Insurance Note Capital Term RLIII 2006-1 and
the MM Securities are issued out of Insurance Note Capital MMS RLIII 2006-(1
Moody's said the change in review direction to possible downgrade
is driven primarily by the adverse impact on the securities' estimated
probability of default (PD) due to the significant increase in expected
credit losses on the residential mortgage-backed securities (RMBS)
in River Lake III's investment portfolio, as well as the higher
(almost 200 basis points per annum) funding costs associated with the
ongoing Dutch Auction failure affecting the MM Securities, which
may continue for the intermediate- to long-term.
In addition, the model previously used to monitor the transaction
had a downward bias in its estimate of PD and expected losses (EL) which
has since been corrected.
These adverse factors are somewhat offset by the actions taken by Genworth
including recapture of business, potential future recaptures,
obtaining approval for River Lake III's reinsurance trust to be
trued-up on a book value basis, and other measures under
consideration. The Term Securities and MM Securities benefit from
the recapture of about 25% of the total statutory reserves to-date
and approximately 20% of additional statutory reserves expected
to be recaptured in the next two years by GLAIC, which is the ceding
company in the underlying reinsurance agreement with River Lake III.
The rating agency commented that the net impact of these offsetting developments
is a deterioration in the transactions' cash flows, impacting
in particular the estimated PD of the securities, thus resulting
in the change of the direction of the review to possible downgrade.
Moody's said that the elevated expectations of investment losses and the
higher funding costs could result in a multi-notch downgrade of
the securities, especially for the MM Securities which are directly
impacted by the Dutch Auction failure.
Moody's said that the focus of the review will be on refining its assessment
of the potential economic losses of River Lake III's investment
portfolio and the impact of such losses on the EL and PD of the securities
evaluated under various scenarios, the impact of the sponsor on
the ratings, and the differentiated impact of the Dutch Auction
failure on the two classes of securities. According to Shachar
Gonen, Moody's Analyst, "During our review,
we will evaluate the impact of any potential actions that GLAIC may take
to protect its interest in the transaction, as well as the dependency
of the transaction on the credit profile of Genworth and GLAIC,
and the extent to which this may effectively cap the ratings. Some
of the changes currently under consideration could be very favorable to
the credit profile of the notes, but would not be expected to result
in revised ratings higher than those currently assigned."
The rating agency stated that the ratings of the securities are meaningfully
influenced by estimates of expected loss and probability of default derived
under various scenarios using stochastic modeling of the insurance cashflows
of the term life business reinsured to River Lake III and the performance
of the underlying invested assets. The actuarial performance of
the underlying level premium term business supporting the reserve funding
structure has been consistent with Moody's expectations, and has
not contributed to the credit deterioration of the transaction.
In addition to the higher cost from the MM Securities' Dutch Auction
failure, the concentration of invested assets in mortgage-backed
securities (approximately 20% of book value at 12/31/08) has contributed
materially higher expected loss content than previously expected.
Furthermore, higher expected losses on other structured securities
and corporate bonds as a result of the recession will place additional
pressure on the ratings.
Moody's current rating action, to change the direction of
the rating review to possible downgrade, also reflects a correction
of an error contained within a model used to monitor the transaction.
Since 2008, Moody's had rated these securities in part based on
output from a model with an error that understated both the EL and PD
of the securities. Giving consideration to the various scenarios
suggested by a corrected model, the ratings on the Term Securities
and the MM Securities would likely have been lower by multiple notches.
However, actions taken by Genworth to-date have improved
the credit profile of the securities and served to offset deterioration
in the transaction that had been understated by the previous monitoring
model. The review will consider updated performance of the securities
under various scenarios derived using the corrected model as well as the
impact of actions taken by Genworth to support the transaction,
as detailed above.
On the positive side, Moody's noted the Term Securities and
MM Securities are no longer negatively impacted by collateral payments
required for changes in the market value of the investment assets due
to recent changes which required regulatory approval. As such,
River Lake III is able to carry assets in its regulatory reserve trust
account on a book value basis, thereby eliminating the need to true-up
assets due to mark-to-market value declines; previously,
there was the risk of erosion of the capital of River Lake III from required
true-up transfers of unencumbered assets into the reserve trust
account to the point of a breach of a capital covenant and a resultant
event of default.
The rating agency also cited as a positive the benefit from the multiple
recaptures of portions of the business ceded to River Lake III executed
by GLAIC. The amount of regulatory reserve relief provided by the
transaction to GLAIC is effectively capped by the amount of outstanding
surplus notes ($750 million) issued by River Lake III as part of
the transaction. By recapturing the "excess" portion
of the reinsured business, GLAIC can seek alternative solutions
to obtain maximum regulatory relief from the underlying regulatory reserves.
The recaptures, in turn, benefit the holders of the securities
because (1) GLAIC must pay a penalty fee to River Lake III when it recaptures
business, (2) the capital associated with the recaptured business
remains with River Lake III, and (3) the mortality risk exposure
in the transaction is reduced post-recapture because of the smaller
River Lake III, a special purpose captive reinsurer sponsored by
and wholly-owned by GLAIC--an operating company of
Genworth--was established for the purpose of financing collateral
for the excess statutory reserves associated with distinct blocks of business
ceded by GLAIC. The reinsurance agreement between GLAIC and River
Lake III covers defined blocks of level premium term life policies subject
to the statutory reserve requirements of Regulation XXX.
Surplus notes issued by River Lake III are held by the Trusts, which
have issued the Term Securities and MM Securities--with
payment terms identical to the surplus notes--in order to
fund the excess reserve requirements of GLAIC. According to the
rating agency, the primary source for River Lake III to service
its surplus note payments is the investment cash flows received on the
assets that River Lake III has acquired with the proceeds of the securities
issuance, and to a much lesser extent, reinsurance profits.
The acquired assets are held as collateral in a regulatory reinsurance
credit trust account for the purpose of securing the statutory reinsurance
reserve credit that GLAIC takes with respect to its reinsurance transaction
with River Lake III.
Moody's ratings on securities that are guaranteed or "wrapped" by a financial
guarantor are maintained at a level equal to the higher of a) the rating
of the guarantor or -- as in this case -- b) the published underlying
rating. The A2 rating for the Term Securities and the A3 ratings
for the MM Securities reflect this modified "credit substitution" approach
and are equal to the underlying ratings on these securities. Moody's
approach to rating wrapped transactions is outlined in Moody's Special
Comment entitled "Assignment of Wrapped Ratings When Financial Guarantor
Falls Below Investment Grade" (May, 2008). All of the securities
are insured under a financial guaranty policy, which covers timely
interest payment and ultimate principal payment, provided by Financial
Guaranty Insurance Company (FGIC, not rated).
The following ratings were changed from review with direction uncertain
to review for possible downgrade:
$250 million INC Term Securities, Series RLIII 2006-1
debt rating of A2;
$100 million INC Money Market Securities, Series RLIII 2006-1
debt rating of A3;
$100 million INC Money Market Securities, Series RLIII 2006-2
debt rating of A3;
$100 million INC Money Market Securities, Series RLIII 2006-3
debt rating of A3;
$100 million INC Money Market Securities, Series RLIII 2006-4
debt rating of A3;
$100 million INC Money Market Securities, Series RLIII 2006-5
debt rating of A3.
The last rating action on the Term Securities and MM Securities associated
with River Lake III occurred on April 9, 2008 when Moody's upgraded
the ratings on the securities—Term Securities to A2 from Baa3,
and MM Securities to A3 from Baa3—and placed all the ratings under
review with direction uncertain. The upgrades reflected the change
from basing the ratings on the ratings of FGIC to the underlying ratings
of the securities in accordance with Moody's modified "credit substitution"
The Term Securities' and MM Securities' ratings were assigned
by evaluating factors believed to be relevant to the credit profile of
the Term Securities and MM Securities such as (i) the demographics and
actuarial experience of the referenced block of (re)insurance business,
(ii) relevant industry experience for similar products/underwriting,
(iii) review of independent actuarial report, including assumptions
underlying projected cash flows, (iv) expected loss and probability
of default estimated via stochastic modeling of the insurance cashflows
and the performance of invested assets, and (v) other factors believed
to be applicable to the assessment of the creditworthiness of the transaction,
such as a review of the structural, legal, and regulatory
Other methodologies and factors that may have been considered in the process
of rating these securities can also be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
For more information, visit our website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Moody's changes review of River Lake III's insurance-linked securities to possible downgrade
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com
under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.