UPDATE: Re-rating would mean 12 points of risk-based capital, Phoenix says

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Related Companies Phoenix Cos. (PNX) Phoenix Life Insurance Co.

Related Documents Transcript (ET) Phoenix Cos. 11/3/2009

Related Articles 11/3/2009 Phoenix posts Q3 operating loss, forms new distribution company 10/28/2009 NAIC sets vote to strip RMBS ratings 10/19/2009 Q&A: Michael Moriarty, chairman of the NAIC's Valuation of Securities Task Force

Related Issues in Focus Reduce, Reuse, Re-REMIC

A proposal by state insurance regulators to re-rate RMBS held by life insurers would impact roughly $200 million of securities held by Phoenix Life Insurance Co., according to parent holding company Phoenix Cos. Inc.

Speaking during a Nov. 3 conference call, Phoenix Cos. CFO Peter Hofmann said Phoenix Life had statutory surplus of $613 million at the end of the third quarter, down slightly from the end of the second quarter.

However, should the NAIC adopt the plan to strip current ratings from thousands of life insurer-held RMBS and use new assessments to map life insurers' required risk-based capital, Phoenix estimates it would see its risk-based capital ratio improve 12 percentage points to 255%, Hofmann said.

"Our target for the year remains at 300%, and … our focus continues to be on reinsurance, optimizing internal capital management and reducing risks in order to achieve that target," he said.

Under the NAIC proposal, which has already cleared several committees of the group, a third-party vendor would be hired to model the expected cash flows and remaining value of life insurer-held RMBS that major credit rating agencies have downgraded. The full group has scheduled a Nov. 5 conference call to vote on the plan.

Phoenix held $1.82 billion of RMBS at Sept. 30, representing 51.8% of its $3.51 billion structured securities portfolio. The company had $72.4 million in unrealized losses on its book of prime mortgage RMBS at quarter's end, down from $122.7 million of unrealized losses at year-end 2008, and $129.3 million of unrealized losses on RMBS backed by subprime or Alt-A loans, down from $155.4 million at year-end 2008.

Phoenix Chief Investment Officer Chris Wilkos said continued downgrades by credit rating agencies, particularly of RMBS and collateralized loan obligations, drove the increase in Phoenix's portfolio of below-investment-grade bonds to 11% of total bonds at the end of the third quarter, up from 10.6% at the end of the second quarter.

"We have several initiatives under way to reduce below-investment-grade exposure and increase the quality of existing below-investment-grade bonds," Wilkos said. "These initiatives include selling appreciated high-yield bonds and exploring alternatives to reduce the RBC charges on CLOs and other asset-backed securities."

On Nov. 3, Phoenix reported a third-quarter operating loss of 2 cents per share, compared to operating income of 6 cents per share in the year-ago period. The Thomson First Call mean earnings estimate for the quarter was 12 cents per share, according to SNL Financial.