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Moody's upholds disability-linked securities rating

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Notes that Unum Group Corp. (NYSE:UNM) is using to help support life and disability reserves are doing about the same as they were in late 2009.

Moody’s Investors Service today said it will keep the rating of Baa1 that it has assigned to insurance-linked securities issued by Tailwind Holdings L.L.C., a limited liability company that Unum started in 2006, to back disability insurance claim reserves.

Tailwind, which is incorporated in Delaware, owns Tailwind Reinsurance Inc., a special purpose captive reinsurer that’s domiciled in South Carolina, Moody’s said.

Tailwind Re has used capital raised by the sale of Tailwind notes to help back disability policies issued by Unum Life Insurance Company of America, Moody’s said.

Moody’s also has maintained the Baa1 rating it has assigned to notes from Northwind Holdings L.L.C.

Northwind Holdings, a Delaware limited liability company, owns Northwind Reinsurance Company, a special purpose captive reinsurance company that’s domiciled in Vermont.

Northwind Re has used capital from note sales to provide reinsurance for Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company and Unum Life Insurance Company of America.

The Northwind reinsurance arrangements help fund reserves for a block of life policies that cover both active workers and workers who are collecting disability benefits.

The outlook on the notes issued by the Unum captives is stable, Moody’s said.

Moody’s last reviewed the notes’ ratings in April 2011. Moody’s also affirmed the notes ratings that time around.

Moody’s assigned the Tailwind notes an Aaa rating when Tailwind issued them in November 2006, and the Northwind notes an Aaa rating when Northwind issued them in October 2007.

The securities originally benefited from support from a financial guaranty policy from MBIA Insurance Corp. MBIA now has an insurance financial strength rating of B3, and MBIA’s ratings are under review for a possible downgrade, Moody’s said.

Moody’s is now basing the Unum captives’ ratings entirely on the strength of the notes themselves, without taking the MBIA guaranty policy into account, Moody’s said.

The reinsurance cash flows for the notes and the underlying invested assets are performing in line with Moody’s expectations, according to Scott Robinson, a vice president at Moody’s.

Tailwind and Northwind have invested mainly in investment-grade securities, Moody’s said.

“The minimal exposure to real estate-related structured finance securities has enabled the notes to avoid some of the investment pressures faced by other life insurance-linked securities,” Moody’s said.

The ratings could go up if Tailwind and Northwind continue to pay down principal, the actuarial experience exceeds expectations and captives keep their risk-based capital (RBC) ratios over 200 percent, Moody’s said.

The ratings could drop if the captives pay less principal than expected, the actuarial experience is poor, or the RBC levels fall below 200 percent, Moody’s said. 

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