Solidum Partners, the Swiss specialist insurance and reinsurance linked investment manager, has completed a $12 million Jungfrau IC Limited 2019 private catastrophe bond issuance, which is the fourth to use the firms blockchain system.
Solidum Partners became the first in the world to create and settle a securitised catastrophe reinsurance contract using the private blockchain in 2017, which it named the ILSBlockchain.
This is now the fourth issuance of private cat bond notes on this blockchain system, with the total amount of catastrophe bond securities on this blockchain now sitting at $50.1 million.
This $12 million issuance is the first 2019 catastrophe bond to be issued using the blockchain. It was issued in January.
Solidum created and settled twelve separate tranches of notes using its transformer and incorporated cell company Solidum Re (Guernsey) ICC Limited, for this issuance.
The $12 million of Jungfrau IC Limited notes are split across the twelve tranches within two B and V series, all of which are exposed to property catastrophe risks from around the world.
Some of the tranches are focused on cover for losses from U.S. risks, others U.S. risk plus peak perils, and some are worldwide reinsurance protection.
All of the tranches represent per-occurrence retrocessional reinsurance covers, with six of them offering first-event protection and the other six offering second-event protection. The underlying retrocessional reinsurance contracts all have a one-year term.
Each of the tranches represent a different level of seniority, hence risk level, providing investors with a wide range of risk and return options within the deal.
Solidum Partners told us that the notes are largely collateralised with U.S. Treasury bills. However some of the more senior second-event notes are allowed to be collateralised using non-correlating catastrophe bonds, subject to an over collateralisation and replacement should those cat bonds suffer losses during the terms of this deal.
This is a clever way to allow an investor or one of Solidum’s own funds to put perhaps lower risk and returning cat bonds to work in collateralising a higher risk and return investment opportunity, benefiting from the leverage that could provide.
Should a first-event occur, those cat bonds used for collateralisation must be exchanged for cash or T-bills, Solidum said.
All of the notes were settled using Solidum Partners ILSBlockchain and can now be traded amongst existing participants on the blockchain.
Commenting on the completion of this latest blockchain based catastrophe bond deal, Cedric Edmonds, Partner at Solidum, said, “As the ILSBlockchain gains increasing participants, including now a reinsurer as well as ILS fund managers, the potential market on the ILSBlockchain increases. Notes are issued and settled at a fraction of the cost and time than that needed when using Euroclear. Equally secondary trades clear and confirm within seconds.
“Solidum continues to add notes on the ILSBlockchain through the incorporated cells of Solidum Re and can offer a one-stop-shop from reinsurance through transformation into ABS (Cat Bond Lite), settlement and even listing on the TISE if required. Equally though Solidum would happily allow others to create and settle their securities on the ILSBlockchain, provided that the follow the Euroclear ‘Classical Global Note’ format.”
Solidum’s blockchain initiative clearly demonstrates the efficiencies that can be gained by leveraging blockchain technology in a prudent manner to save on transaction friction and costs.
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