Securitisation of life insurance portfolios could provide a valuable source of financing for acquisitions and other strategic investments by releasing the embedded value from blocks of business.
Securitisation of mortgages and credit card receipts is already commonplace. Recent placements have helped to demystify and highlight securitisation’s potential within life insurance.
Almost any asset or liability and its underlying cash flows could potentially be marketed for securitisation including premiums, charges, commissions and reserves.
Investors in life insurance securitisation have been attracted by competitive yields and the opportunity to diversify their asset-backed portfolio away from the current concentration on consumer credit.
The use of credit wraps backed by third party guarantors is helping to limit risk to investors and enhance market confidence.
The development of securitisation is significantly increasing the life insurance sector’s access to the financial markets. This could eventually create a liquid market in life portfolios, which could in turn have a far-reaching impact on financing arrangements and the cost of capital.
Securitisation could potentially facilitate a fundamental shift in life insurance business models, with manufacturers taking on the role of intermediaries that underwrite and package risks before transferring them to the financial markets.
