Specialty insurance and reinsurance player Brit Ltd. is entering the catastrophe bond market for its first full 144a deal and is utilising its UK domiciled multi-use collateralised reinsurance PCC vehicle, Sussex Capital UK PCC Limited, for the $250 million U.S. multi-peril Sussex Capital UK PCC Limited (Series 2020-1) issuance.
Brit registered and licensed its UK risk transformation vehicle Sussex Capital UK PCC back in 2018 and in the last year has been actively using the UK based ILS regulatory structure in underwriting certain deals for its Sussex ILS funds.
Now we see the Sussex Capital UK PCC (protected cell company) utilised for Brit’s own reinsurance protection, as the company will issue a single series of catastrophe bond notes using it, on behalf of one of its protected cells, we’re told.
With this arrangement Brit is seeking to access the capital markets for collateralized catastrophe reinsurance, using its already established UK special purpose insurance vehicle that is licensed under the UK Risk Transformation Regulations 2017.
Sussex Capital UK PCC Limited will issue a single, currently sized at $250 million Series 2020-1 tranche of notes that will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the UK domiciled ILS structure and Brit Syndicates Limited, the companies Lloyd’s underwriting platform and managing agency.
We understand that the ultimate beneficiary of the reinsurance protection will be Brit’s Lloyd’s syndicate 2987.
The catastrophe bond notes will fund a source of multi-year reinsurance protection for Brit, covering it against certain losses from U.S. named storms and U.S. earthquakes, with coverage including Puerto Rico and the U.S. Virgin Islands across a four year term to the end of 2024.
The coverage is retrocessional in nature, being based on a weighted industry loss index trigger and annual aggregate basis, with a franchise deductible based on index points per event for it to qualify.
The currently $250 million of Series 2020-1 cat bond notes that are being issued by Sussex Capital UK PCC will have an initial expected loss of 3.08%, our sources said and will be offered to investors with coupon guide pricing of 7.75% to 8.5%.
Once completed, this Sussex Capital UK PCC catastrophe bond will be only the second issued from a UK domiciled protected cell company, after Pool Re’s Baltic PCC Limited (Series 2019) terrorism cat bond.
In fact it will be only the fourth catastrophe bond issued under UK rules, with the other two having been issued on behalf of French reinsurance company SCOR using a PLC company structure (the Atlas Capital UK 2018 PLC (Series 2018 ISPV 1) and Atlas Capital UK 2019 PLC (Series 2019-1) transactions.
So it’s positive to see another UK catastrophe bond come to market, as it adds greater diversity to the sources of issuance and drives home the increasing options for sponsors in the now increasingly global insurance-linked securities (ILS) market.