Introduction to securitisation

Where it began: How actuaries use their skills

The actuarial profession emerged in the 17th and 18th centuries to solve a critical problem facing early life insurance companies: ensuring sufficient funds to pay for future death benefits. These first actuaries developed analytical tools that remain foundational today, transforming life insurance from speculation into a sustainable, mathematically rigorous business.

As the profession matured, actuaries discovered their blend of skills across mathematics, financial expertise, data analysis and business understanding had broader applications, in other fields where adequate benefits had to be balanced with long-term sustainability. The 20th century saw actuaries expanding into general insurance, health insurance and superannuation.

In the 21st century, actuaries are advising organisations across various sectors on complex risk landscapes.

Securitisation is another area where actuaries can apply their skills.

This article will give a brief background to securitisation, how it started in Australia and the state of the industry today.

Later articles in this series will go into greater detail, explore the parallels between securitisation and life insurance and describe how the actuarial skillset is well-suited to pursue opportunities in this growing industry.

A bit of history

In Australia, the early adopters of securitisation were non-bank mortgage originators who needed to solve a problem - who would give them the money to lend.

They could try to use third-party money in the traditional sense, that is, to borrow it from banks (utilise their balance sheet), solicitor funds, or fund managers via some form of note or lien on the mortgage asset. However, in the late 1970s, the US market developed securitisation as an innovative and potentially more efficient product to fund mortgages.

Australia’s securitisation industry began when Aussie Homes Loans and Interstar adapted this American invention to the Australian context to raise funds.

What is securitisation?

At its core, securitisation is a balance sheet management tool. It is a method used by non-bank lenders to raise funds, given they lack a deposit base and by banks to raise additional funds via alternative sources and/or reduce the capital intensity of their lending.

In a nutshell, securitisation comprises the following:

• A pool of mostly homogenous assets: The most frequently securitised assets are mortgages. By pooling assets with similar characteristics, risk is diversified across the pool. This reduces the volatility of cashflows and (amongst other factors) allows securitisation to achieve a lower overall cost of funding than could be achieved by financing an individual asset.
• A standalone legal vehicle known as a Special Purpose Vehicle (“SPV”): This legal vehicle owns the assets, removing them from the originator’s balance sheet and separating legal ownership from the bankruptcy risk of the originator. The SPV is established by a set of legal documents termed the “transaction documents”.
• Notes or units for raising funds: The SPV raises funds through issuing notes or units in the SPV to investors. These notes entitle the investor to receive specified cashflows from the SPV. Funds raised by the SPV are used to purchase the assets from the originator.
• Transformation of cashflows: Cashflows from the assets are pooled in the SPV and paid to investors as specified in the transaction documents.

Further features and benefits of securitisation will be discussed later in this series.

Securitisation today

The securitisation industry in Australia is growing.

Australian securitisation issuance in 2025 ^[1] (the total amount of funding raised) exceeded $80bn and was roughly equal to the total Australian general insurance revenue in the same period ^[2] .

Source: Bloomberg | https://www.securitisation.com.au/market-statistics

The most commonly securitised assets in Australia are residential mortgages (Mortgage Backed Securities, “MBS”), however, commercial loans (Commercial Mortgage Backed Securities, “CMBS” / loans to Small and Medium Enterprises, “SME”) and asset finance (Asset Backed Securities, “ABS”) are also growing in popularity. Major asset categories within ABS include automotive loans, credit cards, consumer lending and equipment finance.

Source: Bloomberg | https://www.securitisation.com.au/market-statistics

The vast majority of issuance in 2025 originated from non-bank lenders (“Non-ADI”). The major Australian banks (“Major”) and other authorised deposit-taking institutions (i.e. banks, “Other ADI”) contribute a smaller share of total issuance.

Source: Bloomberg | https://www.securitisation.com.au/market-statistics

The sustained growth of the securitisation industry in Australia can be attributed to a variety of factors, including:

• Increasing popularity of non-bank lenders, who are heavy users of securitisation to fund their lending.
• Improved awareness of and demand for securitised notes by fund managers and other investors. As demand for investment in securitisation has grown, this has further improved the economics for issuers relative to alternative financing arrangements, driving additional growth in issuance.
• Expansion into new asset classes such as buy now pay later loans, green loans, and reverse mortgages.

Where to next?

The growing securitisation market in Australia improves the availability of funding for non-bank lenders, increasing competition and facilitating the entry of new lending products into the market. This can have a positive influence on consumer outcomes through increased product choice and price competition.

The following articles in this series will delve deeper into the concepts of securitisation and explain how the actuarial skillset can help us pursue career opportunities in this growing industry.

Securitisation is also covered in the Actuaries Institute’s Banking subject as part of the Fellowship program. Find out more.

Further market statistics, reference materials and training opportunities are available through the Australian Securitisation Forum website.

References

^[1] https://www.securitisation.com.au/market-statistics

^[2] https://www.apra.gov.au/quarterly-general-insurance-performance-statistics