An analysis of securitization in the insurance industry

This article analyzes the benefits and costs of securitization in the insurance industry and explains why securitization has nor been more successful in the industry. The analysis suggests that these transactions are primarily motivated by tax and regulatory considerations rind by the pursuit of capital at competitive costs. However, the prospects of securitization in the insurance industry do not appear promising because (1) it is costly to transform unstable cash Hows from insurance products into fixed-income securities, (2) regulations do not allow insurers to take the securitized assets or liabilities off the insurer's balance sheet, and (3) insurers have little need for using securitization to diversify asset portfolios. The prospects may improve if the regulatory and technological environments become more favorable.