The principal balance of the rated notes are collateralized by a pool of trust preferred securities, surplus notes and secondary market securities (collectively, the capital securities), primarily issued by small to medium-sized insurance companies. The capital securities are pledged as security to the notes. Interest paid by the issuers of the capital securities are the primary source of funds to pay operating expenses of the issuers and interest on the notes. Repayment of the notes principal is primarily funded from the redemption of the capital securities.
This rating action primarily reflect: (1) the current issuer credit ratings (ICRs) of the remaining issuers of the capital securities; (2) a stress of up to 250% on the assumed marginal default rates of insurers (derived from Best's Idealized Default Rates of Insurers); (3) the amount of capital securities considered to be in distress; (4) recoveries of 0% after the defaults of the capital securities; and (5) qualitative factors such as the effect of interest rate spikes; subordination levels associated with each rated tranche; the adjacency of very high investment grade ratings to very low non-investment grade ratings in the transaction's capital structure and the possibility that additional redemptions of highly rated entities will leave lower-rated companies in the collateral pool.
The rating could be upgraded or downgraded and/or the outlook revised if there are material changes in the ICRs of the remaining insurance carriers, an increase in the number of defaulted capital securities and/or additional capital security redemptions.
The following debt rating has been affirmed:
This is a structured finance rating.
For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit http://www3.ambest.com/sfc/.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of
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