Forward Exit Option

The Forward Exit Option (FOE) is an innovation that was developed for the insurance-linked securities market by specialist legacy insurance and reinsurance underwriters, as a mechanism to enable pre-agreed exit terms from typically longer-tailed ILS arrangements.

Typically, the forward exit option is most commonly seen in casualty sidecar structures, where given the longer-tail nature of the underlying casualty risk investors could face trapped capital issues, particularly due to differences in reserve reviews and collateral requirements.

The forward exit options is normally designed to allow investors a chance to novate or commute their holdings in the sidecar for a pre-agreed cost, providing assurance of a defined time horizon for their investment and exit at a pre-agreed point in the structures life span.