Insurance and reinsurance specialist investment manager Hudson Structured Capital Management is allocating to a novel third-party liability, or casualty risk, transaction that has been arranged by MultiStrat Advisors Ltd., enabling it to access the returns of workers’ compensation insurance risks.
The underlying transaction sees $35.3 million of seasoned workers’ compensation liabilities being assumed by a MultiStrat owned reinsurance vehicle which will issue preference shares into which Hudson Structured Capital Management, the ILS, re/insurance and transportation finance investment firm established by ex-Goldman Sachs structured finance head Mike Millette, will be investing $20.1 million.
MultiStrat Advisors Ltd., part of the MultiStrat Re total-return focused reinsurance underwriter and servicing company, and its affiliate the Annapolis Consulting Group, arranged and provided the necessary due-diligence for this transaction and will also act as its ongoing servicer.
Hudson Structured, operating as HSCM Bermuda, worked alongside MultiStrat and the cedant the risk was sourced from, to structure the transaction. The arrangement is designed to provide the cedant with full run-off management of its liabilities and collateral, while Hudson Structured aims to benefit from the portfolios insurance-linked returns.
At the same time, and what makes this casualty ILS transaction particularly interesting, the loss fund will be actively managed by one of the largest private asset managers in the United States, Payden & Rygel, in order to generate an enhanced return on the assets, as well as benefit from the liability risk returns.
Payden & Rygel, an asset manager with around $110 billion under management, will look after the portfolios assets using an asset-liability management strategy, in order to minimise the asset risk while generating investment returns.
This is particularly interesting as it brings together the ILS strategy of collateralizing the underlying insurance risks, alongside the total-return strategy of generating an enhanced investment return as well. This strategy can not only help to enhance the returns that the portfolio of risk can generate, it also enables an ILS investor to work alongside an asset manager, which of course could be the same entity in many cases.
That could be a very attractive proposition to some asset managers, who understand the opportunities ILS can present but are also attracted to the premium assets as well. Through the segregation of the liabilities and investment assets, these novel transactions can be structured that enable asset managers to benefit on both risk and investment side of a longer-tailed insurance or reinsurance linked deal.
HSCM Bermuda likes to allocate its capital across the risk and return spectrum in all instruments and sectors of insurance and reinsurance. The investment manager has already been active in the legacy casualty reinsurance, which is an area we do not see crop up that often in ILS.
HSCM Bermuda tends to collaborate with established platforms for this kind of transaction and says it was “pleased to work with MultiStrat on this deal.”
MultiStrat specialises in launching reinsurance companies for asset managers and institutional investors, and delivering attractive opportunities to those seeking access to reinsurance related risks. Annapolis Consulting Group, which is a part of MultiStrat, provides run-off finality solutions, including acquisitions for captives, Qualified Self-Insured’s, RRGs and other risk assuming entities.
Rachel Bardon, Managing Director of HSCM Bermuda, commented on the deal; “We are delighted to complete this transaction in this legacy block of business.”
Tim Tetlow, Partner of HSCM Bermuda, also said; “This transaction allows the cedant to move forward and focus on its future.”
Michael Millette, Managing Partner of Hudson Structured, stated; “We are pleased to collaborate with MultiStrat in this transaction. We have studied a series of opportunities together and expect that this will be the first of many that we complete.”
Sean Logan, CEO of ACG, said; “By consulting with the client on their requirements for collateral management and adverse development protection, we structured a solution that met the client’s requirements and HSCM’s return expectations.”
Jim Robinson, CEO of MultiStrat Advisors, added; “This investment represents the continued expansion of alternative capital through “Casualty Linked Accounts,” allowing segregation of liabilities and direct investment of assets for investors like HSCM.
Bob Forness, CEO of MultiStrat, commented: “The combination of the HSCM Bermuda team’s expertise and our efforts over many months produced an attractive transaction and a template for the future. We look forward to working more with HSCM going forward.”
Firms that assissted with this transaction included StormHarbour Securities LP acting as placement agent for this casualty ILS deal, reinsurance brokers Preferred Reinsurance Intermediaries Inc. (South Carolina) and RFIB (Bermuda) Ltd., and rent-a-captive facility Uberrimae Fidei Insurance Company Ltd.
It’s encouraging to see evidence of the ILS markets’ gradual expansion into longer-tailed, casualty lines of risk. By finding a structure that enables the asset side of the portfolio to be put to work as well, this type of transaction could open the way for other ILS investment managers to get more involved in casualty lines.
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