Youi returns for Eclipse Re powered collateralized reinsurance renewal

Australia and New Zealand homeowner and motor insurer Youi is returning to the capital markets for the fourth year in succession, as it seeks a 2018 renewal for its now regular collateralized reinsurance note placement, again with the help of Rewire Holdings and Horseshoe Re, we understand.

This Youi transaction marks the fourth year that the insurer has called on insurance-linked securities (ILS) investors to back a portion of its catastrophe reinsurance program, having first placed a collateralized note through Rewire in 2015, which it followed up with renewals in 2016 and also 2017.

We’re told that the 2018 renewal sees Youi utilising the Eclipse Re Ltd. private syndicated collateralized reinsurance note platform, which is operated by Horseshoe Group and Rewire Securities LLC for the second time, having used that platform for its 2017 renewal as well.

The resulting notes are considered akin to catastrophe bonds, hence these really aren’t any different to the private cat bonds we cover, being securitised and broadly marketed to investors by Rewire on behalf of the ceding company.

This year the structure of the collateralized reinsurance arrangement has changed slightly, with Youi seeking a solutions that will provide it with per-occurrence, annual aggregate and top and drop reinsurance protection, we understand. The top and drop protection is a new feature for this renewal we are told.

The collateralized note arrangement will provide Youi with all natural perils reinsurance protection on an indemnity basis across a one-year term, with three Eclipse Re notes said to be being issued, to collateralize and transfer the risks on two limits of $26.5 million which sit at the bottom of Youi’s reinsurance tower above a retained layer, the second of which will be a reinstatement limit we understand, as well as one additional limit structured to provide the top and drop style protection.

For Youi, the inclusion of the capital markets within its reinsurance program has provided the insurer with a way to effectively diversify its sources of risk capital, while the relationship with Rewire and Horseshoe has provided it with an efficient platform through which to access fully-collateralized reinsurance protection.

As with the previous Youi deals, Rewire Holdings will assist by syndicating the collateralized reinsurance notes through its Rewireconnect system, enabling broad participation by ILS investors in the transaction and providing Youi with broad access to the capital markets.

The Rewireconnect system and the Eclipse Re platform will also enable secondary trading of the notes after issuance, we expect, making the issuance more attractive to investors who do not want to buy and hold the notes for the duration. The notes will be either zero-coupon or discounted, we assume, as is typical of such transactions.

As ever with these privately transacted collateralized reinsurance note transactions, which are akin to a catastrophe bond really and investors think about them in a very similar way, details are scarce at this time. We understand the transaction closes for the start of July and we hope to have more details at that time.

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