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Portfolio > ETFs > Broad Market

Guarantor Woes Rattle Insurance Securitization Market

By Jim Connolly

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The problems in the mortgage-backed securities market could cause a pause in the insurance-linked securities market.

Chris Brockwell, director of insurance-linked securities at Swiss Re Capital Markets, New York, talked about that possibility here at a recent investment symposium sponsored by the Society of Actuaries, Schaumburg, Ill.

The capital markets are supplying about $35 billion in life ILS capacity, and the volume of new ILS issuance was 50% higher in 2007 than in 2006, Brockwell said at a session on securitization.

The need for life securitizations will continue over the long term, Brockwell predicted.

But ILS issuers have relied heavily on the same monoline insurers that have enhanced the ratings of mortgage-backed securities to get top ratings for ILS issues, Brockwell said.

Now, Brockwell said, investors have concerns about the monoline insurers’ exposure to the problems with mortgage-backed securities.

But the current problems in the credit markets could help the ILS market, by increasing the appeal of securities linked to risks, such as mortality risk or morbidity risk, that are not correlated with the ups and downs in the financial markets, Brockwell said.

Another speaker at the SOA symposium, Jeffrey Bamundo, talked about the importance of maintaining clear communications and accountability after a securitization transaction has been completed.

A failure to manage the business behind a securitization properly increases the risk of financial reporting errors and other problems, Bamundo said.

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