Securitized Surplus Notes A Growing Trend: NAMIC

By Michael Ha

NU Online News Service, Sept. 24, 11:33 a.m. EDT, NewOrleans?A trade group official told insurers meeting herethat mutual companies are increasingly using securitized surplusnotes as a tool to match the capital raising capacity of publiclytraded firms.

"From the balance-sheet point of view, certainly the primarydistinction between a mutual and a stock company is the constraintsthe mutual has when it comes to raising capital," said ChuckChamness, the newly named president and chief executive officer atthe National Association of Mutual Insurance Companies.

But in the past year, NAMIC has been very pleased to be able tohelp offer "some very creative and effective new ways to raisecapital through surplus-notes transactions," Mr. Chamness said.

In past years, surplus notes only had a limited ability toassist mutual companies on their balance sheet, he commented. "Butthere have been significant developments in the past year, andNAMIC now has partnerships with companies that are offering newsurplus notes programs that can be securitized," Mr. Chamnesssaid.

"So now, larger offerings can be made where many mutuals areincluded, and they can all benefit through surplus notestransactions," he observed. "It really is a significant developmentfor the mutual insurance world because it's a much more efficientway of offering surplus notes compared to what was available in thepast. It's very low-cost and long-term."

An increasing number of mutual companies are taking part in thisongoing transition from the old type of surplus notes programs tothe newer type of securitized programs that offer much greatercapacity and capital on better terms, Mr. Chamness pointed out.

Mr. Chamness also advised that a company would still need astrong balance sheet to take advantage of this emergingopportunity. "It is not a last-chance capital--this is capitalthat's available to companies that have strong business andbusiness plans for the future with strategic goals and needs."