Securitized Surplus Notes A Growing Trend: NAMIC

One of the challenges mutual insurance companies face is the difficulty of raising capital, especially when compared to publicly traded companies. But that barrier may be breaking down, as more mutuals begin to take advantage of a growing trend: securitized surplus notes.

“From the balance-sheet point of view, certainly the primary distinction between a mutual and a stock company is the constraints the mutual has when it comes to raising capital,” said Chuck Chamness, the newly named president and chief executive officer at the National Association of Mutual Insurance Companies.

But in the past year, NAMIC has been very pleased to be able to help offer “some very creative and effective new ways to raise capital through surplus-notes transactions,” Mr. Chamness said.

In past years, surplus notes only had a limited ability to assist mutual companies on their balance sheet, he commented. “But there have been significant developments in the past year, and NAMIC now has partnerships with companies that are offering new surplus-notes programs that can be securitized,” Mr. Chamness said.

“So now, larger offerings can be made where many mutuals are included, and they can all benefit through surplus-notes transactions,” he observed. “It really is a significant development for the mutual insurance world because its a much more efficient way of offering surplus notes compared to what was available in the past. Its very low cost and long term.”

An increasing number of mutual companies are taking part in this ongoing transition from the old type of surplus-notes programs to the newer type of securitized programs that offer much greater capacity and capital on better terms, Mr. Chamness pointed out. But he also advised that a company would still need a strong balance sheet to take advantage of this emerging opportunity.

“It is not last-chance capital–this is capital thats available to companies that have strong business and business plans for the future with strategic goals and needs.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.