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Boston University School of Law




This Article analyzes and evaluates the legal problems that have arisen in connection with this rapidly developing insurance risk securitization. The first part of the Article deals with legal issues concerning the SPVs that undertake insurance and reinsurance contracts with ceding insurers and the other parties to the transaction. The Article addresses the dilemma in choosing the laws applicable to SPVs, the bonds they issue, and the persons and entities that form part of the securitization transaction. These laws involve state insurance laws, bankruptcy and tax laws, the Investment Company Act of 1940 and the Commodity Exchange Act of 1934, the Securities Act of 1933 and the Securities Exchange Act of 1934. All these laws treat insurance and securities differently, and do not comfortably fit both. In addition, the insurance/securities distinction may require a choice between state and federal laws. Further muddying the waters is the McCarran-Ferguson Act, which gives priority in some cases to state insurance laws.

Recent developments in the financial markets have posed similar problems of classification, and attempts have been made to accommodate arrangements that bear the features of more than one "pure" financial asset species. One form of analysis focuses on whether the financial asset resembles one type or another. However, there is no escape from determining what "resemble" means, and that leads to a policy inquiry about the problems which the legislation was designed to reduce or eliminate, and to the policies underlying the chosen solutions. This Article has adopted this approach.

Part II of the Article examines the proposed solutions that the insurance industry and its regulators have offered to the legal problems involving insurance securitization, and unresolved issues that are still pending. The Article concludes with a proposed guide to addressing the issues.

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