Insurance and reinsurance broker Aon has been working with insurtech Vesttoo on intellectual property insurance-related financing solutions, with the latter helping to bring capital markets capacity to the brokers proposition.
Aon has been providing clients with financing solutions for their intellectual property assets for some time, with the collateralized nature of some of these transactions enabling capital market investors to take on the risk.
This offering enables intellectual property-rich companies to realise the value of their proprietary IP upfront.
Previously, Lewis Lee, CEO of Aon’s Intellectual Property Solutions, told Artemis about the opportunity these intellectual property transactions present to capital market investors and especially to insurance-linked securities (ILS) funds and their clients, as he sees significant potential for ILS capital to absorb some of the premiums they yield.
Now, we’ve learned, that Vesttoo, the insurtech with a focus on facilitating capital market transactions to insurance-linked securities (ILS) investors, has been working with Aon on this IP related product offering.
These arrangements enable companies to leverage their IP as collateral to fund their growth.
So far, Aon has been involved in more than $1 billion worth of intellectual property deals in the last two years.
The broker has been working with banks globally, while insurers and also capital markets insurance investors are also playing an increasing role as capital providers.
Aon believes investors and insurers are attracted to this new and uncorrelated asset class, that offers investable structures that offer diversification across geography, industry, and technologies.
In addition, Vesttoo has been seeing growing demand for capital to support these insurance-related growth transactions.
By working with Vesttoo, Aon said that it has been able to unlock more capital to support these deals.
Vesttoo has assisted by securing additional capital commitments for the insurance component of these IP financing deals, from institutional investors.
These investors are happy to take on the risk associated to the IP deals, in return for a diversifying source of return.
Hence, it suits some established ILS investors, those that invest beyond pure catastrophe risks.
These IP transactions effectively have two triggers, with the main one being the potential for the intangible IP collateral not being sufficient to cover the principle in case of default, with Aon believes differentiates this insurance product from credit risk and so makes it appealing to institutions seeking relatively uncorrrelated returns.
Vesttoo leverages its methodology to transform the risk into an investment asset, meaning the investors cover the risk of a triggering event, but also share in the premiums from the product.
In time, these transactions are expected to generate an ecosystem of institutional capital that can provide the insurance and also reinsurance support to grow what is seen as a segment with significant opportunity.
As intangible assets and IP build up within organisations, the ability to realise that value and put it to work in supporting financing for growth is expected to be a significant opportunity, resulting in a need for risk capital and a growing role for capital market investors.