Deutsche Bank Securities Inc. is reportedly near closing a deal with Dallas-based Lift Financial backed by life insurance policies, according to market sources.

The deal would likely be closed on DBSI's balance sheet and held to aggregate for a potential term transaction in the future. Some in the market expressed surprise as Deutsche had apparently been taking a step back from the sector, sources said. Bankers at Deutsche declined to comment on the reports.

The life insurance sector has generated substantial buzz in recent months. Nomura Securities was also said to be warehousing life settlements on its balance sheet (see ASR, 8/23/04). However, all the noise has made it difficult to separate the wheat from the chaff. Ratings analysts have said that several new issuers could be in the market with life insurance-related offerings in the near term; however, the sector remains sparsely populated despite the clamorous pipeline.

The two types of insurance deals are Life Insurance Life Annuities Backed Charitable Securities (LILACS) arbitrage transactions, and the less common senior settlements. LILACS match annuities against individuals in the pool, mitigating the need for the kind of mortality analysis necessary for straight senior settlement deals. Patron's Legacy has completed four LILACS to date.

The $70 million Legacy Benefits Corp. offering, which priced via Merrill Lynch in March, was made up primarily of senior settlements with a smattering of annuities mixed in, and is the only transaction to successfully securitize such a pool, ratings analysts said. Moody's Investors Service provided the sole rating for the Legacy transaction. The 35-year class A notes were rated A1', while the 35-year B notes received a Baa2'.

It has proved difficult to achieve a structure for senior settlements transactions - such as the Legacy Benefits offering - that investors and rating agencies can get comfortable with.

Some within the industry have also questioned the unsavory practices of certain brokers trafficking in life insurance polices, as reports have surfaced of firms flying in policyholders from other states to sign documents in Texas, one of the more favorable legal jurisdictions for insurance companies.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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