Life Insurance Securitization - The Actuaries' Club of the Southwest

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Securitization is gainingmomentum as an alternative to reinsurance• Insurance companies are no strangers to the capitalmarkets; property/casualty firms have used cat bonds foryears to mitigate natural and catastrophic risks• Securitization provides almost unlimited capacity• However, capital markets have a learning curve in orderto become familiar with underwriting risk• Transactions to date have been private placements withsignificant life industry participation• For now, high transaction costs make securitization mostviable for large blocks of business• Fixed nature of many costs leads to greater economiesas deal size increases©Towers Perrin5
When is securitization most viable?• Securitization is best suited to well-defined blocks ofbusiness with a significant level of redundant statutoryreserves and/or capital• Some examples include:• Closed blocks formed by recently demutualizedcompanies• Term business with XXX reserve strain• UL business with AXXX reserve strainBonds are issued with principal and interest paymentssecured against the future profits that emerge from aspecific segment of a life insurer’s business©Towers Perrin6
Page 2 and 3: AgendaOverview of LifeInsuranceSecu
Page 4 and 5: What is life insurance securitizati
Page 10: Two closed blocksecuritizations hav
Page 14 and 15: Securitization of terminsurance red
Page 20 and 21: Developing a securitization structu
Page 24 and 25: The financial model and its underly

Life Insurance Securitization - The Actuaries' Club of the Southwest

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