AXIS Capital’s collateralised reinsurance sidecar vehicle Alturas Re Ltd. has completed another issuance of preferred shares, as the specialist global re/insurer continues to expand options for third-party investors to participate in its underwriting returns through quota shares.
AXIS continues to expand its insurance-linked securities (ILS) activities, especially its use of private quota share reinsurance arrangements to let investors participate in its returns in recent years.
The Alturas Re reinsurance sidecar structure has come in for increasing use in that time, allowing AXIX to syndicate some of its risk to third-party investors in a securitised form.
The Alturas Re sidecar is one of the more novel structures in the reinsurance sidecar market, as it is dual-use in featuring cessions of tranches of property catastrophe reinsurance related risk, as well as tranches that provide investors with access to the returns of some of AXIS’ primary property insurance risks.
This latest issuance by Alturas Re is the sidecar’s second issuance of preferred shares, as the structure has shifted away from issuance of participating notes now in two issues.
Back around the middle of the year, AXIS’ Alturas Re sidecar issued 3,628 of Series 2020-3R preferred shares, with each having a par value of $0.01 and due June 30th 2021.
The R in the series name denotes these as reinsurance-linked notes we believe, while in previous issues an I has denoted insurance-linked issuances.
Now, Alturas Re has issued an additional set of preferred shares, with a much larger issuance of 3,627,248 preferred shares that each have a par value of US$1.00 per share and are due at the same date as the earlier issue, June 30th 2021.
The 3,627,248 of $1 each Series 2020-3R preferred shares issued by Alturas Re have been privately placed with qualified investors and listed on the Bermuda Stock Exchange (BSX).
We suspect they will support an end of year renewal timed cession of reinsurance risk to a third-party investor, that sought an equity like way to access the returns of the sidecar rather than a principle at-risk notes investment.
The value per share does not explain the issuance size in these preferred share issues, rather they tend to be given a nominal value at issuance but can then be sold or traded for more. As such the actual amount of quota share protection secured through this latest sidecar from AXIS is unknown.
This latest use of the Alturas Re sidecar vehicle shows AXIS utilising the structure again for the mid-year renewals, as it had in 2019.
Given the equity-like nature of the notes as preferred shares and the fact private equity investors have been pouring capital into reinsurers, it is possible that AXIS could be using Alturas Re as a way to connect private equity appetite with its underwriting returns, although that is conjecture at this stage.
A year ago, we reported that AXIS Capital had issued $64.14 million of notes in its first Alturas Re sidecar issuance for 2020, in a deal that looked to have been a renewal of the property catastrophe reinsurance cession from the vehicle.
Then, we reported last January that AXIS Capital added another layer to its Alturas Re collateralised sidecar issuance for 2020, with $47.25 million of what looked to be property catastrophe insurance linked notes issued in two tranches.
As a result, there is every chance further Alturas Re issues come to light over the next few weeks, potentially with an insurance-linked tranche or further note issues.
AXIS’ use of direct quota share arrangements with ILS investors has been an important part of its capital arrangements for a number of years now, but the Alturas Re sidecar enables the firm to syndicate its risks more broadly should it choose.
With the Alturas Re sidecar, AXIS Capital takes greater control of these quota share style cessions to investors and has enhanced options for delivery of risk and its syndication more widely or in different forms to suit investor-needs, as evidenced with this latest arrangement.
While AXIS earns a share of fee income by managing the risks within its own vehicle, rather than ceding them to an investor-owned protected cell structure.
For details of many reinsurance sidecar investments and transactions over the history of the ILS market, view our comprehensive list of collateralized reinsurance sidecars transactions.