Mid-sized life insurance companies looking for ways to finance their statutory Triple-X reserves may have a new option. Today, a reinsurer can provide financing for a sponsor company’s excess Triple-X reserves, freeing up capital while ensuring that required reserves are in place. The financing applies to Triple-X reserves exceeding the level of reserves the sponsor can demonstrate, based on past experience and reasonable future assumptions, will be needed to pay claims.
Triple-X reserves are required for U.S. term life insurance products with long-term guarantees.
Although this type of transaction has the potential to significantly change how mid-sized life insurers manage their reserves, it is still very uncommon.
Triple-X securitization deals expected to grow
Driven by their unique benefits as well as market conditions, such transactions are expected to become more common over the next several years. Competition in the life insurance market will require mid-sized insurers to look for new ways to gain an advantage in the marketplace, including improved premium pricing. In addition, the credit crunch and market volatility will make it harder to access public market financing options.
Further, a properly structured private Triple-X transaction can improve the direct insurer’s statutory results without impacting rating agency debt leverage ratios at the holding company level. The transactions can be attractive for both existing business and business that hasn’t been written yet.