The Fibonacci Reinsurance Ltd. special purpose insurance vehicle helps reinsurer RenaissanceRe source risks efficiently for its third-party investors, as well as for its Medici cat bond fund, in a sidecar style structure that can provide bond-like investments.
RenaissanceRe launched the Fibonacci Re vehicle at the start of the year, with a $140 million initial issuance of Series 2017-1 participating notes.
Unlike a traditional collateralised reinsurance sidecar, the Fibonacci Re vehicle offers RenRe more flexibility to provide its third-party investors direct access to reinsurance risks and also provides catastrophe bond-like product for its RenaissanceRe Medici Fund Ltd., which invests in catastrophe bonds only.
With the cat bond pipeline often unpredictable and sometimes unreliable, in terms of supply, RenRe can now use Fibonacci Re to securitise reinsurance contracts into a form to supply its cat bond fund and other investors.
At the same time third-party investors can access the underlying reinsurance contracts directly through investments in the notes issued through Fibonacci.
RenRe can also use Fibonacci Re to bring third-party capital into its offering to provide larger lines on clients reinsurance programs while benefiting from the output being a cat bond like product.
In this way RenRe can leverage Fibonacci Re as another add-on to the traditional balance-sheet.
The risks involved are U.S. catastrophe perils, from risk remote, top layers of catastrophe reinsurance programs.
The underlying collateral in Fibonacci Re is invested in European Bank for Reconstruction and Development (EBRD) notes, which offer benefits to investors as they carry a higher yield than the more typical U.S. treasury money market funds most often used to collateralise ILS vehicles.
This means investors can benefit from a higher yield, by about 40 or 50 basis points, which on a remote risk, top layer, ILS investment can be very attractive to the end-investor.
Looking ahead the mid-year reinsurance renewals could present an opportunity for Fibonacci Re to increase in size, by offering additional notes.
So for the end-investors Fibonacci Re offers a sidecar-like vehicle in which they can access insurance-linked returns alongside and in alignment with one of the most prominent writers of property catastrophe reinsurance.
That makes the launch of Fibonacci Re a particularly interesting one in the ILS market, as it demonstrates another way that a reinsurer can leverage third-party capital alongside its balance-sheet, while meeting the requirements of a wider spectrum of investors.
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