securitization

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Securitization

Creating a more or less standard investment instrument such as the mortgage pass-through security, by pooling assets to back the instrument. Also refers to the replacement of nonmarketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued in the public capital markets.

Securitization

The process by which a company packages its illiquid assets as a security. For example, when a company makes an initial public offering, it effectively packages the company's ownership into a certain number of stock certificates. Securities are backed by an asset, such as equity, or debt, such as a portion of a mortgage. Securitization allows a company access to greater funding to expand its operations or investments, or some other reason.

Securitization.

Securitization is the process of pooling various types of debt -- mortgages, car loans, or credit card debt, for example -- and packaging that debt as bonds, pass-through securities, or collateralized mortgage obligations (CMOs), which are sold to investors.

The principal and interest on the debt underlying the security is paid to the investors on a regular basis, though the method varies based on the type of security. Debts backed by mortgages are known as mortgage-backed securities, while those backed by other types of loans are known as asset-backed securities.

securitization

an arrangement which involves putting together a claim on particular assets of a business which is then sold as a negotiable security in the financial markets. Securitization is mainly undertaken by financial institutions; assets involved typically include commercial paper, mortgages, car loans, export credits and credit card receivables.

Securitization enables the issuing institution to raise ready cash, thus improving its liquidity. Purchasers of such securities seek to profit by obtaining claims on assets at less than their redemption value, but they may choose to on-sell their claims in the market.

securitization

a financial technique for raising loan capital that involves a firm issuing a CORPORATE BOND backed by certain specified assets owned by the firm. The interest charges on the bond and the eventual repayment of the bond itself are met by the income streams earned by the underlying assets, while the capital sum raised by the bond can be invested in other areas of the firm's activities. The alternative way to release the capital represented by the underlying assets would be to sell them off or to DEMERGE them into a separate business.

securitization

The process of taking many individual assets and combining them into a group,or pool,so that investors may buy interests in the pool rather than in the individual assets.The creation of collateralized mortgage backed securities is one example.The process increases the number of possible investors due to the ability to sell shares in the pool at relatively modest prices.In addition, because of the high degree of predictability inherent in large groups of things, the process of securitization increases predictability,lowers risk,and therefore increases value.

Example: On a single flip of a coin, how much would you bet that the coin would land heads up? On 20,000 flips of a coin, how much would you bet that it would land heads up fifty percent of the time, give or take two percent? This is a fundamental concept of securitization.

References in periodicals archive ?
The complexity of life insurance securitization impedes its development because underlying cash flows of life insurance securitization are determined by numerous contingencies including mortality, persistency, regulatory risk, insurer policy dividend decisions, and other factors.
Table I shows the property and life insurance securitization issues in dollar terms and by number of transactions through March 2005.
Before the Swiss Re bond issued at the end of 2003, life insurance securitization was not designed to manage mortality risk; rather they were exactly like asset securitization.
Indeed, at least seven catastrophe bond transactions and one life insurance securitization have closed by May of 2009.
FIGURE 4 Life Insurance Securitization Deals Since 1996 Amount Issuer Date (millions) Purpose American Skandia 1996-1998 $900+ Liquidity / M&E Securitization Hannover Re 1998-2002 731 [euro] VIF Securitization NPI April 1998 260 [pounds VIF Monetization sterling] Prudential Dec 2001 $1,750 Closed Block Monetization MONY April 2002 $300 Closed Block Monetization Genworth I Jul 2003 $1,150 Reg XXX Financing Forethought June 2004 $150 VIF Monetization Barclays Life Oct 2003 400 [pounds VIF Monetization sterling] Banner Life Nov 2004 $600 Reg XXX Financing Genworth II Dec 2004 $850 Reg XXX Financing Friends Provident Dec 2004 80 [pounds VIF Monetization sterling]
International Association of Insurance Supervisors, 2003, Issues Paper on Life Insurance Securitization, Basel, Switzerland.
Scottish Re has, once again, blazed a new path in the evolving world of life insurance securitization by successfully completing an innovative transaction in an expedited time frame.
Life insurance securitization has brought the capital markets and the life industry one step closer together, allowing each to play to its respective strengths.
Life insurance securitizations have been on the rise both in the United States and globally, fueled by the availability of ever-increasing amounts of capital chasing deals and returns, the increased regulatory capital requirements for life insurers, and diminished and more costly reinsurance capacity.
Industry-leading organizations such as Munich Re, XL Re, Renaissance Re, Credit Suisse, Deutsche Bank, JPMorgan Chase, Genworth Investments, Citi Global Investors, Nephila Capital and Oppenheimer Funds will come together through unique panel discussions that inform investors of risk transfer through not only the cat bond and P&C markets, but also the emerging and growing life settlements, longevity risk and life insurance securitizations.
It's these same credit problems and related portfolio depreciations that have affected the financial guarantors that were central to life insurance securitizations.
Life insurance securitizations are starting to fulfill a very real need in the market for alternative investments.

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