Fitch Comments on Ballantyne Re Notes Following Scottish Re Downgrades.CHICAGO -- Fitch today commented on Ballantyne Re following an earnings announcement by Scottish Re Group Limited (Scottish Re) (NYSE NYSE See: New York Stock Exchange :SCT Sacrococcygeal teratoma (SCT) A tumor occurring at the base of the fetus's tailbone. Mentioned in: Prenatal Surgery ) and subsequent downgrades by Fitch of the insurer financial strength (IFS) ratings of Scottish Re's operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. . A portion of the loss reported yesterday by Scottish Re reflects adverse mortality and lapse experience. Such adverse experience, if material, could negatively affect cash flows in the Ballantyne Re transaction. Therefore, Fitch is in discussion with Scottish Re management regarding the extent, if any, to which this experience relates to the book of business ceded to Ballantyne Re. If Fitch determines that the adverse experience relates to the Ballantyne Re business and is significant, Fitch will re-model the transaction cash flows to determine if they materially affect the Ballantyne Re transaction. Further, Fitch believes a Scottish Re downgrade could affect Ballantyne Re because Scottish Re's downgrade might affect policyholder lapse or primary insurer contract termination Defense procurement: the cessation or cancellation, in whole or in part, of work under a prime contract or a subcontract thereunder for the convenience of, or at the option of, the government, or due to failure of the contractor to perform in accordance with the terms of the contract (default). rates thereby changing cash flow patterns or resulting in adverse selection and because a subsidiary of Scottish Re is the key counterparty in a reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. contract between the two entities. Currently, Fitch does not believe Scottish Re's counterparty credit risk has risen to the point where it affects the Ballantyne Re transaction. Nonetheless, Fitch notes that life insurance is a highly regulated industry, and Regulation XXX securitizations are a relatively new asset class. As a result, policyholders, the primary insurers, the various reinsurance counterparties or regulators may take actions that increase the risk to the transaction above that initially anticipated when Fitch assigned the ratings. Therefore, Fitch will also continue to monitor this transaction closely for signs of a significant change in the behavior of these constituencies. Fitch believes this risk is heightened when ratings fall into the vulnerable category. Ballantyne Re is a special purpose public limited company incorporated and registered in Ireland. The company was established for the limited purpose of entering into a reinsurance agreement with Scottish Re, and conducting activities related to the notes' issuance. Under the terms of the reinsurance agreement, Scottish Re ceded, on an indemnity reinsurance basis, to Ballantyne Re a block of individual life insurance policies that were previously acquired by Scottish Re from Security Life of Denver (a subsidiary of ING). Ballantyne Re issued the notes to finance excess reserve requirements Reserve Requirements Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve Bank. under Regulation XXX for the ceded block of business. For a detailed discussion of the transaction, refer to Fitch's report on Ballantyne Re Plc, dated May 17, 2006, available on the Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. web site at www.fitchresearch.com. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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