NU Online News Service, Oct. 24, 1:45 p.m. – Life insurance companies are increasingly turning to securitization to improve their capital use and improve earnings, Standard & Poor, New York, says in a new report.
Securitization is the process of selling future income streams to outside investors in return for a lump-sum payment.
“In the past, insurers have both created insurance products and kept them on their balance sheets, rather like being a manufacturer and a warehouser of the same product,” says Jay Dhru, a director with S&P’s financial services ratings group.
Critics suggest poorly managed securitizations may eat into overall, long-term profitability.
But well-managed securitizations enable insurers to delegate warehousing and concentrate on manufacturing, Dhru says.
Securitizations can also help insurers to get income more quickly, providing resources the companies can use to make major investments and acquisitions, Dhru says.
The securitization report is one in a series of S&P reports on methods life insurers are using to get higher returns from their capital.