Horse Capital ILS to help manage loss ratio volatility: Generali

by Artemis on December 30, 2016

Assicurazioni Generali sees the successful acquisition of €255 million of fully collateralised reinsurance protection from the capital markets, through the recent Horse Capital I DAC motor third-party liability loss ratio ILS, as an example of capital markets support for its strategic optimisation of its capital allocation.

Group Chief Financial Officer Alberto Minali explained; “The transaction that we designed further demonstrates the advanced approach of the Group to the capital management and risk mitigation techniques. The success of this initiative, only few weeks after our last Investor Day in London, is also a clear confirmation that the capital markets appreciate once more the initiatives that the Group is undertaking to optimize its capital allocation in line with our strategy.”

Generali noted that it is the first insurance company to optimise its balance sheet protection through the capital markets to transfer risk associated with its motor third-party liability portfolio’s loss ratio.

Generali said that it has successfully set up this Group protection against unexpected fluctuations of its motor third-party liability loss ratio through the transfer of “part of the related risk to the bond investors.”

That suggests that alongside the issuance of the first Rule 144A insurance linked security placement of motor third-party liability risks, Generali has likely acquired further protection from the traditional reinsurance market as well.

Yesterday, Willis Capital Markets & Advisory commented on its involvement in the Horse Capital I transaction, saying that it worked alongside reinsurance broker Willis Re, again suggesting that the motor liability catastrophe bond is likely just part of a program of protection for Generali.

If the ILS market can help to play a key protection role for insurers with large portfolios of motor third-party liability, it could be a significant chance to expand the market and Generali’s transaction could be an important stimulus for further ILS capital growth.

Generali explained how it sees the Horse Capital I transaction almost as a kind of regulatory capital, as well as reinsurance risk transfer, that enables it to; “Better manage the possible volatility of its loss ratio and its solvency ratio, while at the same time leaving the subsidiaries to act in accordance with their underwriting discipline and claims management best practice.”

Generali also hailed the “demand from capital market investors” that helped the transaction and ultimatly the protection afforded to Generali to be upsized by more than 40% from the initially deal size of €180 million.

The Horse Capital I ILS transaction has clearly been well received by all parties and there is every chance we find other primary insurance group’s looking to emulate the deal in years to come.

You can read all about the Horse Capital I DAC ILS deal in the Artemis Deal Directory.

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