AIG struggling to issue life settlement securitization

by Artemis on April 25, 2011

According to the Wall Street Journal, AIG have recently been seeking to sell notes from a new life settlement securitization to investors but have been facing difficulties getting interest from investors who view these types of insurance-linked securitization deals as risky.

From the WSJ article it seems that AIG have been marketing the deal to investors and also rating agencies, essential steps in getting any type of insurance-linked security to market. According to the marketing materials AIG has been marketing $250m of notes linked to life insurance payouts from a unit of its Chartis subsidiary.

AIG have hit a hurdle though, one which could scupper the deal and prevent them from accessing capital markets investors on the terms they’ve been marketing the deal at. Rating agency Standard & Poor’s have declined to give the notes even a preliminary rating, citing their recent report which discussed the difficulties in assessing and rating life settlement securitizations. That report, which we covered here, highlighted the unique risks that life settlements pose but also said that S&P are seeing increasing interest from firms seeking to issue deals. They said in that report that if an issuer could adequately address the risks that a life settlement securitization poses then they would happily rate the deal.

In this case it seems that AIG have failed to address these risks sufficiently for S&P to feel comfortable rating the notes. We assume that AIG will go away and try to satisfy S&P by working through the risks they are concerned about and resubmitting the deal to get a rating. The alternatives are to approach other rating agencies or to try to issue the deal anyway, without a rating, and see if investors are attracted to the opportunity. We’ll update you if we hear anything further about this transaction.

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