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Changes in regulatory reserve requirements for life insurers have spawned one of the largest, fastest growing segments of the securitization market. In the last three years, more than $6 billion in securitizations of life insurance regulatory reserves have been brought to the capital markets by both life insurers and reinsurers. These transactions are commonly referred to as Regulation XXX, or Triple X, securitizations. Regulation XXX refers to National Association of Insurance Commissioners (NAIC) Model Regulation 830, which was adopted by most US states effective January 1 2000 and today is applied in 40 states.
Regulation XXX imposes new conservative methodologies and assumptions for the calculation of the required statutory reserves for life insurers that issue guaranteed-level premium term life insurance policies. The result has been a substantial increase in the reserves that must be held by life insurers on their statutory accounting statements for these policies. These statutory reserves are far greater than economic reserves, those that actuaries and accountants would determine are necessary to cover the future contractual obligations under these term policies.
Economic reserves more closely approximate reserves calculated under generally accepted accounting principles (GAAP).