Securitization is a new method to hedge huge loss exposures of major insurers and reinsurers through insurance policies. Great efforts have been made in order to develop this technique over the last years, as it has made possible for insurance industry both to enhance its international capacity, and to assume risks which were uncoverable in the past. Most insurance life markets’ assets and liabilities, as well as their respective underlying flows (including policies, commissions and reserves), can be securitized. Securitization has turned out to be a valuable source to finance acquisitions and other strategic investments within the context of globalized economy. Life insurance securitization, in particular, has become increasingly attractive for capital markets investors due to the high returns and diversification opportunities involved. Furthermore, it might favour a major change of life insurance business pattern, by turning insurers into intermediaries which subscribe and pack risks before transferring them to the financial markets.
This paper analyses the main life insurance securitization transactions carried out to date, and discusses, from an economic, financial and actuarial focus, the strong properties of securitization in order to help insurers and reinsurers reduce their capital costs and transfer their insured risks, whether traditional or not, to the capital markets.