Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Aus-NZ insurer Youi seeks collateralized reinsurance note renewal


Australia and New Zealand focused insurance firm Youi is back looking to access the ILS capacity with its second syndicated collateralized reinsurance note issuance, according to market sources, as it seeks to cement the use of capital markets cover within its reinsurance tower.

We’re told that this transaction is a renewal of the 2015 collateralized reinsurance note issue that Youi entered into with the assistance of Rewire Holdings, using its online marketplace Rewireconnect in order to broadly syndicate the deal to ILS investors, as well as the assistance of Horseshoe Re which facilitated the reinsurance arrangement.

For its 2016 renewal Youi is looking to replicate the success of last years collateralised reinsurance note issuance, as well as using it as part of a strategic restructure of its reinsurance tower, we’re told.

This years transaction will see Youi enter into two reinsurance agreements with Horseshoe Re, which will in turn issue two collateralized reinsurance notes to investors, with one covering a $25m layer of Youi’s tower and the other covering a second limit for the same layer, sources said.

As in 2015, Rewire Holdings will syndicate the collateralized reinsurance notes through the Rewireconnect system, helping to ensure a broad participation by ILS investors in the deal and broadening Youi’s counterparties with capital markets investors.

Details are scant, as is typical with such a transaction, so the exact mechanisms of the deal and factors such as potential pricing are unknown to us.

What we do know is that the layer covered runs from $10m to $35m of Youi’s newly designed reinsurance tower and that Youi will (as in last years transaction) pay its share of the limit helping investors to benefit from a degree of leverage on their capital.

The notes will provide Youi with reinsurance for all natural perils, so the typical tropical cyclone, wildfire, flooding and severe thunderstorms that affect the region, but also terror risks which is interesting to hear. Coverage is on an indemnity and per-occurrence basis we understand.

As with last year’s transaction, we expect that the notes will be zero-coupon and that investors will receive their coupon via the typical cash participation in the collateral from the cedant, receiving all the collateral if the year sees no losses to the layer.

Youi will benefit from an ability to access the ILS capital markets in a syndicated manner at the same time as its traditional reinsurance placement is proceeding, thanks to Rewireconnect, thus maximising distribution while ensuring efficient transaction costs and lower friction.

Youi’s renewal date is on the 1st of July, so this deal has a good amount of time to gain ILS investor support. Given the success of last year’s transaction, we’d imagine investor appetite to support Youi’s reinsurance needs will be high. We’ll update you as and when any further information emerges in.

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