Sequant Re launches ILS platform, aims to ease investor access to risk

by Artemis on December 16, 2014

A newly launched Bermuda-based insurance-linked securities (ILS) and collateralized reinsurance company aims to lower barriers to entry for investors, as Sequant Re Holdings Limited announces the completion of its financing and the launch of Sequant Re.

Sequant Reinsurance Company Limited (Sequant Re), a newly formed Bermuda based global collateralized reinsurance company, will leverage the best of ILS techniques alongside Bermuda’s segregated account structure to offer, what the company terms, “a flexible and highly efficient platform for the transfer and securitisation of insurance risks.”

Sequant Re is aiming to deploy between $50m and $100m of collateralized capacity in reinsurance and ILS transactions in its first year of operations, according to the firm’s founders, who say they are confident in their innovative approach to ILS and the suite of tools they have at their disposal.

Sequant Re has been founded by CEO Guy Cloutier, who has over 35 years of experience in the insurance and reinsurance markets, most recently as head actuary at American Safety Reinsurance and with 14 years in the Bermuda reinsurance market.

Cloutier aims to innovate with Sequant. “Innovation in platforms and products is the biggest opportunity in ILS. Our goal is to lower barriers for investors and expand the reach of risk transfer and securitisation solutions. ILS make it possible for anyone to transfer risks to investors willing to accept them. Sequant Re provides an efficient platform for matching capital with risks,” he commented.

Sequant Re’s main aim is to lower the barriers to make it simpler for investors to directly access ILS and reinsurance business, while also growing the reach of risk transfer, collateralized reinsurance and securitisation solutions across the reinsurance market.

The firm is targeting a business model which is rapidly gaining popularity, by providing structuring, modelling, transformation and underwriting expertise, while at the same time helping investors to access the risks that best match their investment targets and risk appetite.

Cloutier explained; “Our approach to the business uses segregated accounts in a way that is unique and allows Sequant Re to execute reinsurance transactions while simultaneously allowing investors to build portfolios of risks with a risk return profile that suits them.”

“Our goal is to make access to capital and risk transfer as efficient and flexible as possible. Sequant Re, through its ILS investor base, will provide a source of capital on demand to reinsurance brokers and cedants looking for risk transfer solutions. Sequant Re will allow investors of any size to participate in the risk transfer business with as few limitations as possible whether the commitment is short term and opportunistic or long term and strategic,” he continued.

Provision of capital on demand is an emerging model, which is going to see new, efficient, ILS specialist underwriting firms set up which may or may not directly manage any capital, but which do act as a conduit to match investor capital and risk in the most efficient way.

It’s a particularly relevant model in a reinsurance market which is undergoing change and where efficiency is increasingly important, both in terms of the mobility of capital and in terms of operational costs.

Sequant Re will source its risks through relationships with major reinsurance brokers, where the business model fits the client base and lines of business each broker is involved with. The investor side will build on relationships with ILS investors that the Sequant Re team have cultivated in the past and the firm will be appointing a senior executive to lead ILS financing in the near future.

Sequant Re is licensed to underwrite all types of reinsurance business globally except for life and everything will be fully collateralized. Both customised indemnity transactions and industry index deals will be underwritten by the firm.

The Bermuda segregated accounts company structure will be leveraged by Sequant Re to allow it to execute ILS transactions and to issue securities all within one, single regulated entity. The firm also intends to embrace technology as much as possible and aims to remain lean in order to recognise efficiencies.

Sequant Re has been capitalised for regulatory purposes and to help build a team, infrastructure and to provide launch capital. The backers, all corporate investors in Sequant Re, consist of private investors and a private equity investment firm, which is making a long term value investment in Sequant Re.

Interestingly, the lead investor is Premier Diagnostics, a health technology company that Artemis wrote about nearly a month ago when it revealed an investment in a new ILS and collateralized reinsurance company.

Another investment firm, Corner Market Capital Corporation holds a key stake in Premier. The CEO of Premier is also the Founder of Corner Market Capital Corporation and he already has an appetite for insurance-linked investing, having 18 years’ experience in investments across several sectors including insurance.

CEO Cloutier is firmly behind this emerging hybrid business model, as part underwriting structurer, part capital steward for investors without actually being the capital manager. It fits the current market environment very well and with the existing relationships built by the senior team Sequant Re will likely have access to business and capital from the start.

“The greatest opportunity is the introduction of a new business model and investment products that are efficient and more flexible than are currently offered in the market. Securitisation through ILS and collateralized reinsurance is expected to grow by quantum leaps over the next decade. Sequant Re has the opportunity to be part of that evolution in Bermuda, which is carving a leading role in the global ILS market,” he explained.

Cloutier has put together an executive team which between them has over 60 years of combined insurance and reinsurance business experience and have been actively involved within ILS since the first catastrophe bonds were structured.

David Lalonde, ex-Senior Vice President of risk modelling firm AIR Worldwide where he had spent time being responsible for the capital markets activities at the firm, joins Sequant Re as Chief Risk and Underwriting Officer.

Lalonde commented on the appointment; “I am thrilled to be joining Guy, who has been hard at work formulating these concepts for quite some time. We now have developed and refined a process and the tools necessary to make risk transfer and investing efficient and flexible all within one entity operating in the time-tested Bermuda regulatory regime.”

“David brings a wealth of experience and expertise and is the ideal professional to lead the company’s entry in the global ILS reinsurance market,” Cloutier added.

Also joining the firm, Peter Hughes takes on the role of Director at Sequant Re Holdings Limited. Hughes is Founder and Chairman of Apex Fund Services Ltd., one of the world’s largest independent fund and private equity administration companies with $30 billion in assets under management in 26 countries.

Andrew Cooke also joins the firm as a Director of Sequant Re Holdings Limited. Cooke is a CPA and CA with experience in business valuation, acquisitions, financing and communicating with stakeholders. He previously spent seven years at Lumbermen Mutual Casualty Company as Treasurer and manager of a $2.5 billion investment portfolio in addition to his other duties.

Cooke also serves as a Director to Corner Market Capital US Inc., the privately held investment management services company which has assisted with Sequant Re’s initial financing. Cooke will help Sequant Re navigate the initial growth period and assist in further financing activities.

It will be fascinating to watch this new breed of ILS focused reinsurance company as they develop and how this business model adapts to the current and future market environment.

With reinsurers losing market share and facing growing pressures, while ILS managers find returns on capital management less easy to make work without greater scale and amounts of capital under management, this hybrid model acting as a structuring conduit for risk and ILS capital increasingly looks like a very attractive place to be.

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