insurance premium loans | Asset Securitization Report



PFS Financing Corp., an active issuer of asset-backed securities secured by insurance premium loans, is preparing a $ 300 million issue.

At PFS Financing Corp. 2021-B, the revolving pool of loans will be secured by the rights of investors to receive amounts from insurance companies if borrowers are unable to repay the latter outstanding amounts on unearned premium loans.

For fully prepaid insurance policies, unearned premiums are amounts corresponding to the time remaining on the insurance policy that insurance companies can use as equity to make loans to borrowers.

According to Moody’s, the borrowers in the 2021-B pool are mainly small and medium-sized enterprises that take out loans secured by property and accident insurance. The agency has identified the historically low write-off rate on these loans as a strength of the loan. Borrowers have a high incentive to repay loans to their insurers. If the borrower defaults on the loan, the maintenance staff will cancel the insurance policy and PFS Financing Corp. 2021-B will receive a refund of the unearned premiums from the insurance company that issued the policy.

In addition, the pool of borrowers is very diverse and detailed: each borrower accounts for 0.4 percent of the total base balance of the pool. The eight largest insurance companies that provided loans to the securitized pool accounted for 22.4 percent of the total principal.

Moody’s also points to the magnitude of ABS’s experience with IPFS, the deal sponsor. Founded in 1977, it is one of the largest insurance premium financing companies in the United States. The company is also servicing the deal.

However, the deal has credit vulnerabilities. Moody’s says that despite its size and experience, IPFS has a monolithic business model. If the IPFS does not fulfill its obligations and the time period between the default of the debtor and the cancellation of the policy expires, the situation could lead to losses for the bondholders. Also, about half of the loans in the pool are concentrated in four states. This could pose a problem for the collection of these small and medium-sized enterprises in the event of local economic disasters.

Moody’s assigned the ‘Aaa’ rating to the $ 282 million Class A bonds, while the $ 18 million Class B bonds were not rated.


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