Reinsurance Group (RGA) Securitizes Life Insurance Block - Analyst Blog

Life reinsurer Reinsurance Group of America Inc. (RGA) has entered a life reinsurance embedded value securitization, through an issuer named Chesterfield Financial Holdings LLC. Via the transaction, the company seeks to recognize some of the profitability of a defined book of life business.

 

Chesterfield Financial Holdings LLC, a Delaware-domiciled company, is proposing to issue $300 million of 4.50% asset-backed notes with an average life of 4.7 years. The notes will be sold to investors to allow wholly owned subsidiary, RGA Reinsurance Company (RGA Re) to realize some of the profits embedded in its U.S. life insurance business.

 

The ceded business underlying the deal is a closed block of policies in-force yearly renewable life reinsurance business that RGA Reinsurance Company had written between 2006 and 2010. Investors will receive regular quarterly interest payments and return of principal as long as the expected performance and mortality experience of the book of life reinsurance is modeled and expected. 

 

Securitization is one of the most important innovations in modern finance. The securitization process involves the isolation of a pool of assets or rights to a set of cash flows and the repackaging of the asset or cash flows into securities that are traded in capital markets. Through securitization, insurers can reduce their cost of capital, increase return on equity, and improve other measures of operating performance.

 

Securitization offers insurers the opportunity to unlock the embedded profits in blocks of insurance presently carried on balance sheet and to provide an alternative source of financing. Securitization also offers new sources of risk capital to hedge against underwriting risk more efficiently than traditional techniques such as reinsurance and letters of credit. 

 

Reinsurance Group carries a Zacks Rank #2 (Buy).

 

Other Stocks to Consider

 

Other players worth considering include Lincoln National Corp. (LNC), StanCorp Financial Group Inc. (SFG) and Protective Life Corp. (PL). All these stocks carry the same Zacks Rank as Reinsurance Group.