Global insurance and reinsurance player ACE Group has secured capital market investor backed catastrophe reinsurance protection, via the syndication and issuance of a collateralized note using the Rewireconnect platform, Artemis can reveal.
Sources told Artemis that ACE had been looking to secure an additional source of protection for its global and international catastrophe reinsurance program needs, enlisting the help of ILS structuring and bookrunning firm Rewire Holdings and choosing to syndicate the transaction through the Rewireconnect platform.
This is the second of these collateralized reinsurance note transactions from Rewire that we’ve covered here on Artemis. Previously, the firm helped Australia and New Zealand primary insurer Youi Pty Ltd. to access fully-collateralized reinsurance capacity from the capital markets for the first time.
ACE is one of the world’s largest insurers, so it’s encouraging to see them utilising collateralized and ILS markets as part of their reinsurance program, as well as embracing the Rewireconnect platform to assist with syndication and issuance.
Given this collateralized note issuance is outside of the normal renewal cycle, it’s possible that ACE sought to take advantage of appetite for new risk at a time when competition for capacity would be lower. Hitting the ILS market now, at a time when new opportunities to deploy risk capital are less prevalent, being between the major renewals, may have resulted in more favourable terms and pricing for the insurer.
We understand that the note transaction, which completed in the last few days and comes on-risk today, enabled ACE to tap ILS market capacity through the transformation of a collateralized reinsurance contract into note form.
The note enables broader syndication within the capital markets and ILS investor base, than perhaps a simple reinsurance contract would afford, while the syndicated approach ensures a consistent price indication is obtained across all markets.
As with the Youi transaction, we’re told that Rewire Holdings has partnered with transformer and insurance manager Horseshoe and its Horseshoe Re reinsurance vehicle to transform the collateralized reinsurance contract into note form for ACE.
In this syndicated approach to securing reinsurance protection, Rewire typically negotiates a single collateralized reinsurance contract which is then transformed and offered to ILS and capital market investors as notes.
For an insurer the size of ACE Group, it’s likely that it will have simultaneously approached the traditional reinsurance market, in order to secure the best pricing, broadest possible syndication and diversification of its reinsurance risk capital needs.
The ACE transaction has a 10 month duration beginning 1st September, we understand, and the note has been structured as a discount or zero coupon note, with two specific layers of risk offered to investors. One was a lower risk layer, the other higher risk and we’re told that both priced at levels comparative to traditional reinsurance market pricing for the risks involved.
As with collateralized reinsurance transactions, the structure of these notes enables the investors to benefit from the leverage gained by ACE’s cash funding the rate-on-line portion of the limit deposited.
At this time we don’t have details of how much cover ACE has procured via this collateralized note transaction.
It’s encouraging to see this method of gaining reinsurance protection, by offering and syndicating a collateralized reinsurance investment in note form to ILS investors, gain traction with a large cedent such as ACE.
It’s also encouraging to see ACE leverage the capital markets and ILS fund capacity for a portion of its reinsurance needs, particularly now it has its own ABR Re reinsurance vehicle established. ACE has been actively restructuring its reinsurance program needs over the last year, so it’s encouraging to see ILS and collateralized feature.
This transaction underlines the fact that the diversification of risk capital remains key to large re/insurers such as ACE and that the attractive terms and features of collateralized protection remain a draw for the very largest re/insurance ceding companies.
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