Introduction to Securitization

CHAPTER 10

Securitization of Future Cash Flows: Future Revenues, Operating Revenues, and Insurance Profits

In this chapter, we discuss some unique examples of securitization—securitization of future cash flows, whole business or operating revenues securitization, and securitization of embedded profits in insurance businesses. All of these have a common thread: they all relate to profits or cash flows out of future operations. These applications illustrate how the securitization methodology has been used to raise capital market funding for something which has always been the traditional domain of the banker—financing business operations. The idea is to understand and quantify the volatilities and build risk mitigating factors for each.