DBRS Morningstar Requests Comments on U.S. Paired Policies Appendices

DBRS Morningstar is requesting comments on the proposed material updates to the following methodologies (RFC Methodologies) to be used to determine credit ratings in the U.S. Paired Policies asset class:
-- Rating U.S. Structured Finance Transactions methodology—U.S. Paired Policies (U.S. Paired Policies New Issue Appendix);
-- Operational Risk Assessment for U.S. ABS Originators methodology—U.S. Paired Policies (U.S. Paired Policies Originators Exhibit);
-- Operational Risk Assessment for U.S. ABS Servicers methodology—U.S. Paired Policies (U.S. Paired Policies Servicers Exhibit); and
-- Master U.S. ABS Surveillance methodology—U.S. Paired Policies (U.S. Paired Policies Surveillance Appendix).

Upon the close of the Request for Comment period, the above-referenced RFC Methodologies may supersede the U.S. ABS General Ratings Methodology (December 2018) (General Ratings Methodology) in respect of the U.S. Life Annuities and Life Insurance Contracts (LILAC) asset class. DBRS Morningstar, upon the finalization of the RFC Methodologies, will refer to the LILAC asset class as U.S. Paired Policies. Please refer to the end of the press release for Additional Disclosures.

U.S. PAIRED POLICIES NEW ISSUE APPENDIX
Please refer to the U.S. Paired Policies New Issue Appendix to the Rating U.S. Structured Finance Transactions methodology, which presents the principal asset class methodology that DBRS Morningstar intends to apply to assign new credit ratings in the U.S. Paired Policies asset class following the finalization of the RFC Methodologies. The U.S. Paired Policies New Issue Appendix provides a discussion of the key analytical and credit considerations, collateral quality and metrics, legal and regulatory considerations, and cash flow analysis applicable to DBRS Morningstar’s analysis of U.S. Paired Policies asset class transactions.

Under the proposed U.S. Paired Policies New Issue Appendix, DBRS Morningstar incorporates key methodology updates that include (1) the usage of the DBRS CLO Asset Model which provides estimates of losses at statistical confidence intervals that correspond to potential ratings and (2) the adjustment of cash flows incorporating DBRS Morningstar’s approach to analyzing mortality and longevity risk.

U.S. PAIRED POLICIES ORIGINATORS EXHIBIT AND U.S. PAIRED POLICIES SERVICERS EXHIBIT
Please refer to the U.S. Paired Policies Originators Exhibit to the Operational Risk Assessment for U.S. ABS Originators methodology and U.S. Paired Policies Servicers Exhibit to the Operational Risk Assessment for U.S. ABS Servicers methodology that formalize the sample list of questions DBRS Morningstar expects to use in the operational risk reviews of originators and servicers operating in the U.S. Paired Policies asset class, upon the finalization of the RFC Methodologies.

U.S. PAIRED POLICIES SURVEILLANCE APPENDIX
Please refer to the U.S. Paired Policies Surveillance Appendix to the Master U.S. ABS Surveillance methodology which presents the criteria that DBRS Morningstar intends to apply in connection with the surveillance of new DBRS Morningstar credit ratings in U.S. Paired Policies asset class following the finalization of the RFC Methodologies.

DBRS Morningstar deems the updates to the RFC Methodologies to be material as the U.S. Paired Policies New Issue and U.S. Paired Policies Surveillance Appendices set forth updated approaches with the addition of a formalized new U.S. Paired Policies Originators Exhibit and U.S. Paired Policies Servicers Exhibit. DBRS Morningstar will apply the U.S. Paired Policies New Issue and U.S. Paired Policies Surveillance Appendices in addition to the U.S. Paired Policies Originator and U.S. Paired Policies Servicer Exhibits to outstanding credit ratings through the surveillance process.

DBRS Morningstar currently has no outstanding public ratings on U.S. Paired Policies transactions. While a majority of confirmation are expected as a result of these changes, DBRS Morningstar expects the remainder to be downgrades if the methodology is finalized in its current proposal.

ADDITIONAL DISCLOSURES
As disclosed in the Notice Regarding the Analytical Integration of DBRS and Morningstar Credit Ratings (Integration Notice) accompanying the General Ratings Methodology, DBRS Morningstar has applied the General Ratings Methodology, effective June 10, 2020, in connection with assigning of new DBRS Morningstar credit ratings, and monitoring outstanding DBRS Morningstar credit ratings, in this asset class (see the following press release for more details: https://www.dbrsmorningstar.com/research/362091). In connection with the finalization of the RFC Methodologies, the Integration Notice will be updated to remove the reference to the U.S. LILAC asset class, and the General Ratings Methodology will remain in use in respect of the asset classes referenced in the Integration Notice, as updated.

Comments should be received on or before October 28, 2022. Please submit your comments to the following email address:
sfcomments@dbrsmorningstar.com

DBRS Morningstar publishes on its website all comments received, except in cases where confidentiality is requested by the respondent.

Notes:
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482 .

DBRS Morningstar methodologies are publicly available on its website www.dbrsmorningstar.com under Methodologies & Criteria.

For more information on this methodology or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.