Catastrophe reinsurance broker and risk/capital management advisor TigerRisk, has successfully transacted the first ever electronic secondary reinsurance trade. A move that could help develop a more liquid secondary market for to benefit reinsurance linked investors.
The secondary reinsurance trade utilised insurance and reinsurance industry focused technology provider, Xchanging plc’s X-gRm solution. Xchanging launched its multi-broker X-gRm platform in March 2015, and has seen more than 750 users from 130 reinsurers sign on for participation since its release.
X-gRm was initially launched to create a simple, secure and efficient environment for international reinsurance transactions, providing an online repository for reinsurance brokers to efficiently distribute information to reinsurance carriers.
Since its launch the platform has been enhanced and expanded to enable its use within the secondary marketplace, a move that could prove beneficial for traditional insurers and reinsurers, and also insurance-linked securities (ILS) investors that want to take on these secondary risks as investments, or that operate in the collateralized reinsurance space.
“Executing secondary reinsurance trades in ‘a live market environment’ provides a host of benefits. It adds liquidity, increases volume and speeds transactions – something we’ve been wanting to achieve in catastrophe reinsurance for a long time. In addition, it opens an easy-to-access, pre-qualified channel for buyers,” said TigerRisk Chief Executive Officer (CEO), Rod Fox.
TigerRisk was actually the first subscribing brokerage partner of the X-gRm platform, and has now successfully completed the industry’s first ever electronic secondary reinsurance market trade using the platform.
Fox underlined the simplicity, ease and speed of transacting in the secondary reinsurance market via the X-gRm platform.
“In this case, the trade was for the last year of a three-year contract. All the analytics and due diligence had already been completed. The risk was very well defined and provided on X-gRm,” said Fox.
Xchanging feels that its X-gRm platform will help to develop the secondary reinsurance market, which in turn will create a more liquid and beneficial environment for both buyers and sellers.
Buyers will be able to efficiently diversify their catastrophe reinsurance portfolios via the ability to quickly trade in deals, while sellers are presented with an easy means of trading out of any position, enabling them to search for a better place to deploy their capital.
Xchanging’s pioneering platform could also help to develop a much more liquid secondary market in collateralized reinsurance, one of the fastest growing segments of the ever-expanding ILS space.
This would provide a benefit to ILS investors that operate in the space, but also traditional insurers and reinsurers that participate in collateralized reinsurance arrangements, owing to the efficiency and speed of trading in and out of positions.
Increased liquidity in any secondary market helps to build investor confidence, which in turn helps to strengthen the acceptance of asset classes such as collateralized reinsurance, which are perhaps less understood than more traditional reinsurance placements.
“Expanding the use of X-gRm to the secondary marketplace is a significant step for this multi-broker platform, and we’re convinced this will become an integral facility of the platform,” said Director of Broking Services at Xchanging, Nick Lamb.
Furthermore, the platform could attract a greater number of buyers to the sector that perhaps require a faster and easier means of accessing reinsurance risk, something that could create an increased demand for reinsurance moving forward.
It could also bring new capital providers to the reinsurance market, as there are investors for whom liquidity is vital and who would prefer to access risk electronically. The platform could ultimately prove a valuable way for ILS funds to manage their portfolio diversification as well, providing a way to switch in and out of positions and investments.
X-gRm is an innovative platform, and it will be interesting to see just how successful and utilized its secondary trading capabilities will be. Insurers, reinsurers, and ILS players are increasingly looking for efficiency in terms of costs and transactional speed, so it might be that solutions like X-gRm become a more common feature of the industry.
For TigerRisk the development of a secondary trade marketplace on X-gRm is just the beginning, with Fox stressing that, “Ultimately, I believe this will lead to the development of a pure derivative market for reinsurance.”
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