On the tail of direct competitor and market leader Putnam Lovell Securities - which has already issued approximately $350 million in variable annuities - Constellation Financial Management is looking to tap the variable annuities sector going forward.

"We see the insurance asset as becoming more and more important," said Joseph D'Anna, a managing director at Constellation. "There is a deferred commission asset which is based on annuity products and life insurance products that is very similar to the mutual funds fee product."

The actual distribution fee on variable annuities that is securitizable is called the mortality and expense fee.

According to D'Anna, a lot of the same investors that invest in 12b-1 fees will find these attractive because they are structurally similar to 12b-1 fees, but have much lower market risks.

"On the whole I think that over the years you'll see that it will become a significant part of the market for this type of asset-backed note," he said.

D'Anna said that Constellation is already a significant financier of those kind of assets and expects to come to market with a deal by the end of the year.

He also predicts that the entire insurance-product distribution business is going to become an important asset class to those that participate in the 12b-1 sector.

Further, there's word that CIBC World Markets, new to the 12b-1 sector, is also eyeing the variable annuities sector as well.

D'Anna said that the area of variable annuities is also a sector that is facing expansion in the European markets, which has Constellation exploring possible transactions overseas.

"We have a number of potential clients that are off-shore mutual fund managers and I think that that will only be of benefit to the investors in this asset class", he said.

"We are able to even more greatly increase the diversity of the assets that go into our deals." - JL

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