Portfolio managers at big insurance companies say falling yields and looser underwriting are ruining their appetite for exotic asset-backed securities called "future flows."

The investors, up to now the biggest buyers of these securities, say the rewards are increasingly not worth the risk.

"The terms are weakening, spreads have tightened, and the quality of the companies seeking financing is getting lower," said Michael T. O'Kane, senior managing director and head of securities at Teachers Insurance Annuity Association. "So we're pulling back from the market."

Yields are being driven down by new investors, which include bond fund managers and even public pension funds buying into the deals, market observers say.

"Future flows" form a small but curious $4 billion corner of the asset- backed securities market. Major banks have a big role.

Unlike credit card or auto loans securitizations, where issuers package receivables on their books into securities, future flows are backed by assets that have not been sold or even made. These privately placed deals are especially popular among newly private Latin American and Asian companies seeking foreign capital.

The deals contain safeguards to protect investors from political and economic upheaval in those countries, including placing their investment in offshore trusts where foreign governments can't get it.

Underwriters acknowledge that "spreads and credit terms have moved heavily in the way of originators lately," according to an executive at a European investment bank who didn't want to be named.

But he disagreed that looser underwriting is the reason. "Spreads are tightening in capital markets everywhere and future flows are not immune to that," the banker said.

Citicorp, Chase Manhattan, Bankers Trust, and J.P. Morgan have been among the most active underwriters of future flow deals. By underwriting future flow securitizations, these banks are able to pass the risk of financing projects in emerging markets onto buyers of the securities.

Investors, in turn, have been attracted by the lofty yields of these securities-sometimes 300 basis points above comparable Treasuries. But investors say spreads in recent months have plunged to only half as much. At those spreads, insurance company investors say, the risks are not worth the rewards.

Nevertheless, the market seems safer to more investors than before because ratings agencies are grading more deals. After a group like Duff & Phelps Credit Rating Co. puts its stamp on the deal, institutions whose policies prohibit buying unrated paper can step in.

"We are starting to see state pension funds call us about these deals, which suggests that they are buying them," said Duff & Phelps analyst Ron Dadina.

But more worrisome than new investors tightening spreads, Mr. O'Kane said, is the caliber of companies that banks are now willing to offer securitization.

"At the beginning you had the creme de la creme, the largest steelmaker in the country, for example," he said. "Now it's frequently smaller companies that take this route."

Deals are being structured without establishing assurances the product, or asset, will be sold, said Malcolm Smith, senior managing director at Cigna Investments, which has bought $500 million worth of the securities.

But what really concerns investors is that they are seeing deals structured so their money goes directly to a company, instead of sending it to an offshore trust to which the company has access.

"It's not real frequent," Mr. Smith acknowledged, "but we've seen it more than once." And it worries investors that underwriters are getting careless with safeguards.

So far investors in these deals have gotten paid for their risk. Hang- ups, said Mark Stancher, senior vice president at Moody's Investors Service, have primarily revolved around regulatory problems.

For example, a year ago Citicorp brought to market a deal backed by future telephone bills in Pakistan. But later it turned out the Pakistani phone company was 100% owned by the national government, which forbade selling what it considered national assets. The investors and underwriters have been trying to settle the matter ever since.

In the end, all this means that the big insurance companies who supported this market in its infancy may be ready to move on and let the next generation take its chances with this nascent market. "It's a catch as catch-can thing," said Mr. O'Kane. "So we're looking for other places to put our capital."

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