AIG Risk Finance, along with a handful of other companies including Centre Solutions and Swiss Re, are tooling around the private (and international) asset-backed market with innovative insurance and credit enhancement structures quite separate from monoline wraps.
"How I'll characterize it as is - not a new way of analyzing risk - but certainly new structures that we can bring to issuers and counter parties that think outside the existing box," said Mathew Cooleen of AIG.
Cooleen, who was recently hired to lead the company down the alternative-structuring path, dubs one of AIG's potential products "a thin-cap guaranty."
"The new direction of AIG Risk Finance," he said, "is to be involved in the structured markets globally. We are effectively a player in insuring transactions, although we don't insure transactions like monoline's insure transactions. We don't use the same exact types of methodologies - we have different methodologies."
Though Cooleen and other sources were intentionally vague about their initiatives, Cooleen did offer rough examples.
He said, "We can structure transactions as residual value-like insurance policies, where we're insuring the assets, or we can come in and potentially work on buying notes outright, and bringing redistribute them to the insurance market in various forms."
Though officials at Centre Solutions declined to comment on specifics, a source close to the situation described the structuring as one that, similar to a conduit, would eliminate the risk of premature amortization.
"They literally take on the prepayment risk, and issue basically fixed-rate bonds, with fixed cash flow schedules," said the source. "I don't know how many people have issued prepayment lockout insured bonds like this. It's definitely a different asset class."
As for AIG, Cooleen views the company's innovations as part of a movement towards a convergence insurance and banking operations.
"Glass Steagle is certainly evidence that this is occuring, but in fact it started well before Glass Steagle was repealed.
"The markets for asset-backeds with respect to the volumes of business, we believe, is far outpacing traditional investors and traditional counter-parties," he explained. "So we're looking at the insurance world as a new distribution source for these types of transactions.
"What we've identified at AIG here is that there's just a need for a new capacity in the market and that market theoretically can be the insurance world," he said.
AIG Risk Finance is a subsidiary of American International Group, the largest international insurance company with respect to the capital markets, $165 billion strong, said Cooleen. American International Group also owns SunAmerica Corporate Finance, one the nations largest asset-backed investment.
