$280.8 Billion Financing Agreement Requires Review by Domestic Insurers

Domestic insurers need to review the financing agreement system to improve their funding structure. Researchers from the Korea Insurance Research Institute stated that large U.S. life insurance companies are providing funds to various industries through financing agreements. A financing agreement is a wholesale funding mechanism that allows insurers to determine the maturity and scale of their liabilities, which is sold to institutional investors through special purpose vehicles (SPVs). The outstanding balance of securities issued based on financing agreements by U.S. life insurers increased from $87.5 billion in 2018 to $280.8 billion last year. Currently, domestic insurers are generating spread income by managing funds secured through product sales, and if market saturation continues, it could lead to stagnation in investment operations. While the introduction of financing agreements can broaden investment resources, it also carries risks. Researchers emphasized that only insurers with sufficient solvency and risk management should consider implementing this system. The discussion on the introduction of the system is crucial in balancing the investment capacity of insurers with the protection measures for policyholders.

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