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April 20, 2008 at 04:00 PM
The need for life insurance securitizations will continue in the long-term, although in 2008 and possibly in 2009, the vibrancy of the market may be temporarily curtailed, according to speakers at a recent Investment Symposium sponsored by the Society of Actuaries, Schaumburg, Ill.
Of a total insurance-linked securities capacity of approximately $60 billion, roughly $25 billion-$30 billion is non-life and $35 billion-$40 billion is life insurance related, said Chris Brockwell, director of insurance linked securities with Swiss Re Capital Markets, New York.
Since 1997, approximately $47 billion in worldwide insurance and reinsurance capacity has been created through the issuance of insurance-linked securities, he said during the session, ‘Securitization: Issuer, Investor, Regulator & Administrator.’
New issuance in 2007 exceeded that of 2006 by 50%, Brockwell noted.
However, there may be a pause in the ILS market because of current problems with monoline insurers who guarantee securities, he told Symposium attendees.
Most ILS’s have relied on monoline companies’ credit enhancements to complete deals by bringing securities into the ‘AAA/Aaa’-rated category, he explained.
To date, he said, this model has worked, although now investors are concerned about monolines’ exposure to subprime problems.
But it is possible that the current dislocation in the credit markets may also increase the flow of transactions where there are non-financial risks such as mortality or morbidity risks, he added. The reason, according to Brockwell, is that there is a limited correlation with financial risks that could be appealing to investors who want diversification.
