"Insurance Securitizations: Coping with Excess Reserve Requirements"

The use of insurance securitizations – a broadly defined class of transactions by insurance companies that have emerged during the past decade – has increased substantially since February 2001, when Regulation XXX became effective on a rolling basis in 37 states. Regulation XXX imposes conservative assumptions and valuation methodologies for determining the level of statutory reserves (which insurers are required to hold under statutory accounting principles) for term life insurance policies with long-term guarantees of premium rates.  These conservative assumptions result in significantly higher reserve levels for insurance business subject to Regulation XXX and limit the financial flexibility of direct issuers and reinsurers of such business.

This article examines the impact of Regulation XXX on the reinsurance market, typical structures in Regulation XXX reserve funding securitizations, and some of the key issues arising with respect to such insurance securitizations.

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