S.C. Securitizations Surpass $5 Billion in Excess Reserves in 2Q 2007

South Carolina Director of Insurance, Scott H. Richardson, announced that South Carolina’s special purpose financial captive insurance program securitized premium streams totaled more than $5 billion in the second quarter of 2007.

This program’s growth is due to its consistent, sound regulation coupled with the Department of Insurance’s continuing commitment to improving efficiency in its review process,” Richardson said. “The goal of the Department is to keep South Carolina as the premier jurisdiction for high-quality regulatory oversight while remaining open to innovation in sophisticated financial transactions using the captive platform.”

South Carolina executed it first securitization in July 2003 as a solution to reserving issues resulting from implementation of Regulation XXX. South Carolina formalized its procedures in July of 2004 with the adoption of Article III of its captive insurance statutes, the first and most comprehensive legislation allowing captive securitization in the US. Since then South Carolina has executed 19 securitizations.

Regulation XXX, adopted by most U.S. States and otherwise known as the National Association of Insurance Commissioners Model Regulation 830, requires insurers to meet certain conservative excess reserve requirements.

The ultimate goal of this regulation is to ensure protection of policyholders in the event an insurer be required to pay out a peak number of claims on an enumerated block of life insurance policies. In order to meet these statutorily required excess reserves, a policy issuer must account for them on their statutory accounting statements pertaining to the underlying block of policies.

“Securitization of the required excess reserves is the most efficient method to relieve insurers and reinsurers of an otherwise significant capital strain issue. Otherwise, the capital required to meet these reserves would restrict the use of these funds for a period of twenty to thirty years, depending on the term of the underlying policies issued,” Richardson said. “South Carolina’s captive insurance securitization program is proud to be the premiere domicile for a financially expedient model in an increasingly efficient national insurance market.”

Other U.S. domiciles have recognized the value of securitization and are attempting to duplicate the success of the South Carolina program. Richardson noted that, “None match the expertise, experience or comprehensive law and regulation that have made this type of transaction synonymous with the South Carolina program.”

Source: South Carolina Department of Insurance