A third protected cell company has been registered and authorised under the UK’s Risk Transformation Regulations 2017, Artemis has learned. Fuchsia Capital PCC Ltd. is lined up for use as a UK insurance-linked securities (ILS) vehicle, with the sponsor said to be re/insurer Beazley.
Specialist Lloyd’s focused insurance and reinsurance player Beazley had been exploring increasing its use of insurance-linked securities (ILS) capital within its underwriting business, with the UK ILS regulations a target as it sought to transact ILS business onshore.
Sources told Artemis that Fuchsia Capital PCC Ltd. was registered in November 2018 as a protected cell company (PCC) under the UK’s ILS focused Risk Transformation Regulations and we’re told Beazley is the sponsor behind it.
The vehicle has been authorised by both the UK’s Financial Conduct Authority and Prudential Regulation Authority, allowing it to undertake risk transfer, risk transformation and enter into collateralised reinsurance or retrocession agreements.
As a protected cell vehicle, Fuchsia Capital PCC Ltd. can enter into multiple segregated ILS transactions, with each cell segregated from the core of the vehicle.
The vehicle can act as a transformer for risks, issuing investments from each cell to fund and collateralise the subject business, thus enabling third-party investors or ILS funds to access the insurance and reinsurance linked returns of the business ceded to each cell.
One cell has already been created within Fuchsia Capital PCC Ltd., named 2019-1, we understand, suggesting that a transaction for the 2019 underwriting year may already have taken place in time for the recent reinsurance renewal season.
It’s likely that Fuchsia Capital PCC Ltd. will sit alongside and support Beazley’s syndicates as a new vehicle for bringing third-party capital into the re/insurers underwriting business.
Fuchsia Capital could simply be a quota share vehicle, accessing and collateralising a share of business from Beazley’s underwriting book for a group of reinsurance linked investors.
Or it’s possible that Fuchsia Capital PCC could also be used for underwriting market facing collateralised reinsurance with third-parties, if Beazley chose to, given the multi-use nature of a protected cell company.
However, we’d expect a sponsor is more likely to use it as a way to pull third-party capital into its own business to begin, hence as supportive rather than competitive capital, so more of a reinsurance sidecar approach perhaps, but with the multi-use nature of the collateralised reinsurance vehicle providing more flexibility going forwards.
Fuchsia Capital PCC Ltd. becomes the third UK domicile multi-arrangement ILS vehicle, following the launches of Neon’s NCM Re (UK PCC) Ltd. which has now completed its second sidecar quota share transaction and Brit’s multi-use collateralised reinsurance vehicle Sussex Capital UK PCC Limited.
It’s no surprise that Beazley would look to leverage the UK ILS regulations, given its London and Lloyd’s market home and focus.
Beazley also brings third-party capital into its syndicates through vehicles such as its special purpose arrangement (SPA) syndicate 5623 and its so-called Smart Tracker product that offers third-party investors access to the returns of a spread of the Lloyd’s underwriting market.
Beazley confirmed that regulatory approval has been received for a protected cell vehicle and the re/insurer said that it is its expectation that the vehicle will be active in 2020.
“At this stage we are exploring ceding a quota share of syndicate 2623/623’s reinsurance account to the vehicle as well as using it to provide access to Beazley’s ‘smart tracker’ syndicate 5623,” the company explained.