Two life insurance securitizations are expected to come to market by year-end in Europe, according to lawyers and other industry experts working on deals. The deals would mark a good showing in a rare asset class which has seen only three public deals in the last 18 months. U.K. life insurers Standard Life andLegal & General are widely considered the most likely candidates to follow in the footsteps of Friends Provident Life & Pensions, whose Boxhill Life Finance deal in December 2004 securitizing £380 million of life insurance embedded value paved the way for similar deals.
John Cummins, group treasurer at Standard Life in Edinburgh, would not comment on the insurer's plans, saying only, "Value-in-force [i.e. embedded value] securitization is another potential tool for insurance companies to manage their capital in an effective manner." At Legal & General, spokesman Steve Leach did not return with a statement on the firm's intentions by press time.
Norwich Union Life & Pensions, meanwhile, which did a £200 million private securitization in October 2004, does plan to do further deals but not until 2006, according to Graham Johnston, director in finance and strategy. The two issuers in Europe to have completed public deals--aside from FPLP--are Barclays Bank, which issued £400 million through Gracechurch Life Finance in October 2003 and National Provident Institution, with its £250 million securitization in 1998.
Vitor Ferreira, director of corporate development at Friends Provident, said the Boxhill deal had reduced the firm's cost of capital and estimated that even today the spread on a securitization would be about half that on what an insurer would pay for tier one debt.
The main drawback of securitization over a Tier I deal is that it takes about nine months to put a deal together rather than one day for a Tier I issue, noted a London-based banker.