The research indicates that, as of May 8, issuance of FANIPs is up by about 56 percent to $8.8 billion.

U.S. life insurers have issued significantly more Funding Agreement Note Issuance Program Debt (FANIPs) year-to-date than in the prior year, according to new research.

Moody’s Investor Service discloses this finding in a May 2014 “Special Comment” report. The research indicates that, as of May 8, issuance of FANIPs is up by about 56 percent to $8.8 billion.

“We don’t expect issuances to reach pre-financial crisis levels, but believe that insurers will continue to pay close attention to the capital markets and funding costs, and issue FANIPs opportunistically,” the report states. “We view the increase issuance of FANIPs as credit negative because they present liquidity and asset liability management (ALM) risks that can emerge during capital markets disruptions, as seen during the financial crisis of 2008-2009.

“During that period, investors need/desire for liquidity prompted them to put back to insurers certain FANIPS, which left insurers scrambling to pay off these contracts,” the report adds. “The unanticipated cash needs, in addition to the historic level of unrealized investment losses experienced throughout the industry, created a liquidity crunch for some life insurers and reveal the inadequate risk management practices of many players in this market.”

In return for a cash premium, a FANIP guarantees a policyholder receipt of cash consideration with interest on a certain date in the future. The policy is a special purpose vehicle that uses the funding agreement as collateral in order to issue medium-term notes.

The following recaps FANIP issuance in 2013 and 2014 (year-to-date) for seven Moody’s-rated life insurers:

Rank

Company

Financial Strength, Rating/Outlook

YTD 2014 Issuances ($M)

Total 2013 Issuances ($M)

1

MetLife

Aa3/Stable

5,287

6,413

2

New York Life

Aaa/Stable

1,195

2,100

3

Jackson National

A1/Stable

800

350

4

MassMutual

Aa2/Stable

750

850

5

Reliance Standard

A2/Stable

500

6

Principal Financial

A1/Stable

350

1,275

7

Prudential Financial

A1/Stable

1,350

 

Total

 

8,882

12,338

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