Innovative financing: Life insurance securitisation
- 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.
