April 2008
Intermediate to advanced
543 pages
13h 50m
English
book
Structured Products and Related Credit Derivatives: A Comprehensive Guide for Investors
by GLENN M. SCHULTZ, FRANK J. FABOZZI, BRIAN P. LANCASTER
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CHAPTER 21
Life Insurance Reserve Securitization
Chris van Heerden, CFA
Analyst
Wachovia Capital Markets, LLC
Regulation Triple X, implemented in 2000, stipulates reserve requirements for term life insurance policies. Intended to standardize reserve requirements in the industry, the statutory reserve requirements set out under this regulation has been viewed as conservative. Insurers have used the securitization market to fund the reserve requirement, thereby obtaining match term funding, advantageous rating agency treatment and potential tax benefits. This chapter reviews the motives for securitization, its implementation and the outlook for future issuance.
For investors, Triple X securitizations offer exposure to a nonsystematic asset class. The underlying drivers of performance, lapse rates and mortality, perform independently of business cycles and financial instruments. Deals benefit from large asset pools, where the large number of policies smoothes performance around the expected mortality rate. Furthermore, triple X transactions are supported by direct capital contributions from the insurer and the retention of future embedded profits from policy premium payments. Financial guaranty insurance policies have been employed by all transactions to date.
THE LIFE INSURANCE SECURITIZATION MARKET
Triple X is one subgroup in the broader life insurance securitization market. Total life insurance securitization reached roughly $18 billion in outstanding volume in mid-2007, with issuance ...
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