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III. Insurance-Linked Securities
L. Embedded Value Securitization
Although late 2014 saw the return of a life insurance embedded value securitization sponsored by Reinsurance Group of America, Incorporated (“RGA”), which announced in mid-December 2014 that its subsidiary, Chesterfield Financial Holdings LLC, completed an offering of $300 million of 4.50% asset-backed notes in a securitization of U.S. life insurance embedded value, the market for similar embedded value transactions did not materialize in 2015 as hoped. Embedded value securitizations take advantage of the capital markets to monetize the future expected profits from a defined block of life insurance policies and can be an attractive way for both insurance companies and reinsurance companies to manage their capital and mortality risk efficiently.
Following closely on the heels of the RGA “Chesterfield Financial” U.S. dollar embedded value transaction, Aurigen Capital Limited announced in mid-January 2015 the private placement of C$210 million of asset-backed notes issued by Valins I Limited, marking the second life insurance policy
embedded value transaction to close in a four-week period, and the first Canadian Dollar embedded value transaction since Aurigen Capital Limited’s “Vecta I” transaction in late 2011. The transaction covers a closed block of Canadian life insurance policies reinsured by Aurigen Reinsurance Limited, a subsidiary of Aurigen Capital Limited, between 2008 and 2013 and consists of 26 life reinsurance treaties from 12 life insurance companies. A unique feature of the offering structure is that it allows for the increase and extension of the notes, providing flexibility to add future new life insurance business and access to capital funding.
Although the market for embedded value transactions was not as robust as hoped in 2015, we would not be surprised to see more embedded value transactions hit the market in 2016.
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Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review