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BNP Paribas closes life securitisation

A US subsidiary of Prudential Financial has closed a $2bn letter of credit deal with a number of banks in the largest life securitisation since the 2008 financial crisis.

The three-year credit agreement will offer the insurer's newly established New Jersey captive insurer a profits smoothing mechanism on a book of short-term closed life insurance policies.

Closed books are policies that are no longer sold but are still on the books of a life insurance carrier as premium-paying policies. The closed book ring-fences the dividend payments to the policyholders from the life insurer's ongoing operations.

Investment bank BNP Paribas originated and led the deal, with UBS and RBS acting as joint bookrunners, The Insurance Insider understands.

The $2bn facility was syndicated among a handful of banks, sources said, and is believed to be the largest closed book securitisation since before the 2008 financial crisis.

The deal closed on 11 October and covers a 90 percent quota share reinsurance between the New Jersey captive and Prudential Insurance Company of America.

The new reinsurance arrangement is intended to alleviate short-term surplus volatility within the closed block, including volatility caused by the impact of any unrealised mark-to-market losses or realised credit losses within the closed block's investment portfolio, Prudential said in its most recent 8K Securities and Exchange Commission filing.

This follows a £50mn embedded value transaction concluded by the bank last year for a block of unit-linked policies from the UK insurer.

Embedded value deals involve securitising the future profits on life insurance books. The risk can be split into asset-related and mortality-related risk.

The embedded value market suffered along with the triple-X market upon the demise of mono-line insurance-wrapped deals after the financial crisis. Such deals are now often kept private.

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