Build America Mutual hails first of a kind financial guarantee ILS


Build America Mutual Assurance Company, a financial guarantee specialist established by the National League of Cities with initial capital from White Mountains, has hailed its $100 million Fidus Re Ltd. (Series 2018-1) insurance-linked securities (ILS) transaction as the “first of its kind”.

We first covered the Fidus Re 2018 financial guarantee ILS transaction earlier this month here, detailing that it is the first ever securitisation and transfer of financial guarantee insurance risk to capital markets investors.

Fidus Re Ltd. is a Bermuda special purpose insurer (SPI) established to issue and sell notes to investors with the proceeds used to collateralize an excess of loss reinsurance agreement between Fidus Re and the sponsor, which is financial guarantee specialist insurer Build America Mutual Assurance Company.

The transaction works exactly like a catastrophe bond, or other ILS where an SPI acts as the issuer to sell notes to investors which collateralize the reinsurance for the sponsor or beneficiary.

It’s the first time we’ve seen such an ILS transaction structure used for financial guarantee reinsurance protection and Build America Mutual is clearly delighted with having tapped the capital markets in such an innovative way.

“As a mutual insurer, BAM was designed to generate unparalleled capital strength to support its guaranty and benefit our investors and issuer members,” Seán W. McCarthy, Chief Executive Officer of BAM commented. “We have delivered on that promise with capital strength well in excess of rating agency and regulatory requirements. This transaction, the first of its kind, is a creative way for us to expand that surplus even further at an attractive price, which speaks to the quality of BAM’s insured portfolio and the strength of BAM’s position in the marketplace.”

“Having a stable and durable foundation of financial strength allows BAM to remain focused on our mission: Providing efficient capital markets access to U.S. public sector issuers who finance essential public infrastructure, and serving municipal bond investors with durable ratings, transparency, and protection against default,” added Robert Cochran, Chairman of BAM. “This foundation was built into our structure from day one when BAM was organized as a mutual insurer, has continued as we have grown our capital base organically, and is further enhanced today by the Fidus transaction.”

As the only mutual insurer of U.S. municipal bonds, Build America Mutual sees its capitalisation as vital and by adding this collateralized reinsurance layer, issued through an ILS structure, the insurer has successfully diversified its claims paying resources with the addition of efficient capital markets funding.

The firm said that the $100 million of collateralized reinsurance coverage it has sourced through the agreement with Fidus Re Ltd. will come into force during the second-quarter of 2018.

You can read all about the first financial guarantee ILS deal Fidus Re Ltd. (Series 2018-1) from Build America Mutual in our ILS and catastrophe bond Deal Directory.

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