(The following statement was released by the rating agency)
CHICAGO, May 30 (Fitch) Fitch Ratings has affirmed the following
notes for SBLI
Re, LLC (SBLI Re)
--$160,000,000 series A surplus notes due 2039 at 'Asf';
--$80,000,000 series B surplus notes due 2041 at 'Asf'.
The Rating Outlook is Stable for both series.
The two series of surplus notes rank equally. Total issuance of
the series A and
B surplus notes equals $145.5 million and $52.1 million,
remainder is expected to be issued over the next several years.
KEY RATING DRIVERS:
The affirmation of these notes reflects the performance
with data provided to Fitch. The ratings consider the
transaction structure, the
financial strength of the counterparties and the strength of the
flows from the ceded blocks of business. Currently, Fitch
believes the strength
of the cash flows exceeds the financial strength of the sponsor.
The strength of the transactions structure consists of an
contribution by SBLI of MA into SBLI Re and any retained
earnings from the ceded
blocks of insurance policies. Certain performance metrics and
restrict experience refunds and dividends to SBLI of MA. Fitch
structure has generated economic profits since inception.
Retention of these
profits along with the paid-in capital contribution from SBLI of
(SBLI of MA) represents a $165 million cushion for the notes.
The rating also incorporates the recent rating affirmation of
counterparties. On May 20, 2014, Fitch affirmed its rating
opinion of the ceding
insurer, SBLI of MA. SBLI of MA ceded two blocks of business to
SBLI Re on a
co-insurance basis. Block A, which is associated with the series
represents level premium term life insurance policies issued
from Sept. 1, 2007
through Dec. 31, 2009. Block B represents similar policies
issued starting Jan.
1, 2010 and ending March 31, 2011, and is associated with the
series B notes.
SBLI Re is a wholly owned subsidiary of SBLI of MA and is a
company domiciled under the laws of the State of Arizona. It is
insurer and was established for the limited purpose of issuing
the surplus notes
and entering into reinsurance agreements with SBLI of MA. Risk
ratios for SBLI Re is very strong and exceeds 600%.
Cash flow modeling addresses the likelihood that note holders
will receive full
payments of principal and interest in accordance with the terms
transaction documents. For this transaction, Fitch focused
primarily on the
effects of higher than expected mortality and insufficient
Since the last review, the defined block of business has shown a
improvement in mortality experience such that the
inception-to-date actual to
expected mortality ratio is 102%. Due to its smaller in-force
size, it is prone
to periodic volatility which is muted by external reinsurance.
In addition, the
tightly managed asset portfolio has performed well and generated
investment income to meet its spread costs. The market value of
portfolio exceeds the amount of notes outstanding.
Insurance cash flow projections were developed by an
actuarial firm that also reviewed the ceded blocks and produced
an analysis of
the reserves. These projections were an input into a cash flow
applied the priority of payments to noteholders. Fitch
stochastically varied the
mortality and rate of return assumptions in the cash flow model
alternative scenarios. This process produced a cumulative
modeled loss curve
that was compared to Fitch's published ILS calibration matrix.
The modeled results indicated that from 2010 to 2020, the
likelihood of default
of the notes was less than 3%. From 2021 to the final note
likelihood of default increased to a range from 3% to 7%. The
change in default
estimates stems from the significant equity position that exists
at the start of
the transaction until shortly after reaching the projected
reserve peaks in 2017
for series A and 2019 for series B. Following the reserve peak,
the notes will
The ratings on the notes may change if either the actual cash
materially from expectations or Fitch's opinion of the ceding
financial strength changes.
Fitch tested alternative assumptions for sensitivity. A
contributor to the
repayment of the notes is the ability of the asset portfolio to
sufficient income to support the note coupon. The co-insurance
requires the asset portfolio to maintain an 'A-' or higher
credit profile with
limitations on single name issuers, sectors and duration.
mortality stresses had a slight effect on the above results.
higher or lower, did not materially affect the results. However,
combination of all risk factors would have an adverse effect on
Primary Analyst (Insurance)
Jeff Mohrenweiser, FSA
Fitch Ratings, Inc., 70 W Madison Street, Chicago, IL 60602
Secondary Analyst (ABS)
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
email@example.com; Sandro Scenga, New York, Tel: +1
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (November 2013);
--'Insurance-Linked Securities' (August 2012);
--'Global Structured Finance Rating Criteria' (May 2014);
--'Counterparty Criteria for Structured Finance Transactions and
Applicable Criteria and Related Research:
Counterparty Criteria for Structured Finance and Covered Bonds
Insurance Rating Methodology
Global Structured Finance Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH