The practice of issuing securities where the repayments of interest and principal on this interest are serviced from a defined set of predictable cash flows is known as securitisation.

Australian banks have securitised cash flows from their mortgage portfolios for many years. Australian wealth management companies have also shown an interest in securitising cash flows from their existing portfolios with the intention of achieving capital reductions or changes in their earnings profile.

Deloitte Actuaries & Consultants work in unison with investments banks, law firms and other professional bodies to offer actuarial advice and projections on cash flow and to assist in identifying where securitisation is a valuable option.

A favourable option
Some of the numerous advantages of securitisation include:

• improved cost of funding as the capital comes at a lower cost of equity capital
• an alternative source of funding in the absence of debt or equity finance
• demand for securities issued as part of a securitisation transaction is currently high due to recently low interest
• the structures of the transaction can be rendered tax efficient to improve the pricing on the securities.