Chinese insurers explore nonstandard securitisations

Originators want faster issuance times, even at higher funding expenses.

Insurance companies in China are showing increasing interest in nonstandard-asset securitisations as they seek alternative investment opportunities amidst a stagnant structured-finance market, according to a report by S&P Global Ratings.

The increasing attractiveness of this investment type is due to originators prioritising faster issuance times, even at the cost of higher funding expenses. 

Liquidity-insensitive investors, including insurance firms and banks' wealth management arms, are participating in these transactions, attracted by the ability to tailor assets to meet specific investment preferences.

The underlying loans in these deals are typically originated through loan facilitators based on pre-agreed eligibility criteria. 

S&P Global Ratings noted that whilst the loan facilitator and the lender or originator conduct reviews, the asset quality may vary more than in standard securitisations due to differences in selection criteria and origination mechanisms.

The "originate-to-sell" model used by loan facilitators raises concerns about potential moral hazard, where facilitators could loosen referral standards to increase loan volume. 

Some transactions include risk-sharing features to address these risks.