Aon sets up Marilla Re collateralized insurer in Bermuda

Insurance and reinsurance broker Aon has established Marilla Reinsurance Ltd. (Marilla Re), a new collateralized insurer class of company in Bermuda, which we understand is likely to support the new catastrophe reinsurance facility of the same name.

It has been widely reported that Aon set up a new global catastrophe reinsurance facility towards the end of 2020, as it sought to bring efficient capacity to its clients in time for the renewals.

Backers that have been cited in the media and our sources have confirmed are global reinsurance players Swiss Re, PartnerRe and also AIG owned Validus.

But the capital markets is also a target capacity provider for Aon’s Marilla catastrophe reinsurance facility and that might explain the reason for setting up Marilla Reinsurance Ltd. as a collateralized insurance structure in Bermuda.

When the Marilla facility was first revealed by Mark Geoghegan, Editor of The Voice of Insurance podcast, he explained that it would operate on an automatic following basis, taking up to a 5% line on global catastrophe excess-of-loss reinsurance program renewals that Aon brokered.

Documents since seen by ourselves explain the proposition to potential insurance-linked securities (ILS) investors and funds, with Aon’s Marilla catastrophe reinsurance facility expected to provide a global index or beta-like access to property catastrophe reinsurance market returns, across what in future is hoped to be a significant proportion of Aon’s book.

The portfolio built under Marilla is expected to be well-modelled, using AIR, covering named peril type exposures and is designed to be appealing to institutional investors, we understand.

Underneath that it will allocate capital automatically to a range of reinsurance structures, on programs where Aon clients have agreed to its participation, where Marilla will follow lead terms and allocate evenly across program tower layers.

Which is a compelling investment proposition, for ILS investors and ILS fund managers looking to gain broad access to a new source of balance-risk from across Aon’s Reinsurance Solution client-base.

It’s not clear how actively used Marilla was at the January renewals at this time, but we understand the name cropped up repeatedly as a new market option available to Aon clients.

So Marilla is just the latest example of giant broker Aon marshalling capital and capacity into renewal business, to satisfy its client-base with efficient reinsurance capital, while also booking more income as a manager of the facility.

That’s typically charged to the reinsurance capital provider participating in these facilities, in the form of a commission.

What’s a little different about Marilla is the fact that Aon targets bringing ILS capital into the mix, alongside the traditional capital from reinsurance carriers backing the facility.

Hence the establishment of Marilla Reinsurance Ltd., as a new “Collateralized Insurer” class of company in Bermuda, we presume.

The collateralized insurer class of company provides a multi-transactional structure for underwriting and transforming collateralized reinsurance, retrocession and even other forms of ILS transaction.

We assume Marilla Reinsurance Ltd. has been established by Aon to provide an underwriting vehicle for channelling third-party capital into this facility and segregating investor or funds participation within collateralized reinsurance involvement in Marilla deals.

We also understand that Aon has renamed a Bermuda investment management entity that was called Aon Hewitt (Bermuda) Ltd. in recent months, with the structure now named Marilla Investment Management Ltd.

That could be a coincidence, of course, or Marilla Investment Management could be established as the investment manager to support ILS investors and funds collateralized participation in the Marilla catastrophe reinsurance facility.

While not everyone appreciates this type of capacity facility, particularly markets that cannot access them and feel the risk is being diverted away from open placement. They undeniably have the potential to bring some efficiency to ceding companies, if their capacity is truly delivered at a lower-cost, as it could be.

Of course, Aon has relationships to manage across the industry, given its scale, meaning it can’t just flood the market with lower-cost capacity without disappointing the other markets it works with.

Meaning such initiatives have to be carefully balanced, in terms of approach and also timing, to ensure they are complementary to Aon’s client offering, beneficial for its clients, while not hurting the other reinsurance markets the broker relies on but who aren’t included.

So it’s no wonder this one will follow-form as it grows, which to the investors who might be attracted to it may serve to make it more compelling, if a spread return of the cat reinsurance market is what they’re looking for.