AXXX securitization could be the next frontier in insurance securitization, although certain roadblocks still remain, said Alex Cowley, managing director at Lehman Brothers. Cowley will moderate a XXX panel at The Bond Market Association‘s insurance and risk-linked securities conference this week.
Regulation AXXX is an extension of XXX regulations that apply to universal life insurance policies, which last for the insured’s life, instead of term life policies, which pay out within a certain time frame. The regulation requires insurance companies to hold significant redundant reserves with respect to guarantees made to consumers of universal life policies, which some have estimated to be around $100 billion.
Because the underlying policies lack a legal final, this makes structuring an AXXX solution more challenging than a XXX solution. Cowley noted a lot of intellectual capital is being devoted to overcoming these obstacles, although he declined to speculate when solutions might be found.