Lottoland collateralised ILS pays out on €14m jackpot win

by Artemis on March 10, 2016

A €14m lottery jackpot win has resulted in a payout from the collateralised reinsurance based ILS transaction, according to sponsor the Lottoland Group, a fast-growing Gibraltar licensed online lottery provider.

Online lottery provider Lottoland said in an announcement that its “innovative insurance-linked securities (ILS) coverage” has paid out to a Dresden, Germany based winner of a €14m lottery jackpot, its largest jackpot win to-date.

This is the first time that one of the lottery winnings linked ILS transactions in the market has been triggered and a payout been made, resulting in a loss to investors in the transaction.

The April 2015 ILS transaction, dubbed Fortuna, is a pure collateralised reinsurance transaction providing €100m of annual coverage to Lottoland, including reinstatements. The ILS transaction was structured into four distinct layers, with differing levels of winnings required to cause attachment of each and providing investors with different options in terms of risk/reward.

The €100m collateralised reinsurance transaction, structured by specialist German ILS structuring and investment firm inea GmbH, was the first to take advantage of the Gibraltar ILS financial services framework and the first to be located in the domicile.

The ILS protection covers Lottoland for large jackpot payouts, enabling the firm to have greater certainty in terms of financing, important to a company which has been growing rapidly and providing white-label lottery services to other brands.

All of the lottery games run by and supported by Lottoland are covered by the jackpot insurance protection that the collateralised ILS provides.

Lottoland Solutions VP, Glen Bullen hailed the fact that it the company is “the first and only business to offer an EU-regulated ILS for the lotto betting marketplace.”

The lottery jackpot ILS deals, which began with the MyLotto24 sponsored Hoplon Insurance Ltd. transaction in 2011 and the Hoplon II Insurance Ltd. in 2014, both of which were structured like a catastrophe bond, have been considered ground breaking in the ILS space.

These transactions, including the Fortuna ILS deal for Lottoland, which provides its protection in a similar way to the MyLotto24 Hoplon issuances, have demonstrated that the ILS and cat bond structure, with its trigger, can be utilised to provide insurance and risk transfer for business risks outside of catastrophes or reinsurance.

While a payout will not have been welcomed by investors in the Lottoland ILS, it is a good proof of the effectiveness of these ILS transactions and the flexibility of ILS to cover a wider range of business risks.

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