GC / MMC to launch Isosceles Re transformer platform for 4(2) private ILS

The use of rented transformer platform structures for insurance-linked securities (ILS) and private catastrophe bond transaction issuance continues to expand and a new Isosceles Re offering from Marsh & McLennan Companies and reinsurance broker Guy Carpenter is set to help make issuance of 4(2) securities more simple.

The new Isosceles Re platform is being rolled out to clients in 2020, we understand and the name is taken from the Isosceles Insurance Limited transformer and rent-a-cell captive structure that was a product of JLT Insurance Management.

Now, after the acquisition of Jardine Lloyd Thompson (JLT) by Marsh & McLennan, it seems the Isosceles structure will be put to good use and used in securities activity, as well as the captive and transformer role it had played in the past.

4(2) or 4(a)(2) securities are private placements, so can include privately placed catastrophe bonds, insurance-linked securities (ILS) and other transformed collateralised reinsurance arrangements.

GC Securities, the capital markets unit of the reinsurance broker, and Marsh Captive Solutions, jointly launched a private cat bond and collateralised reinsurance platform named Cerulean Re back in 2017.

That platform has seen gradual uptake and in 2019 was the platform of choice to a number of private catastrophe bond issues, adding to overall private cat bond volumes during the year.

As we recently reported, private cat bond or cat bond lite issuance reached higher than $900 million for the third consecutive year in 2019, with a record 29 deals recorded by us during the year.

These privately arranged and placed, sometimes syndicated sometimes bilateral, ILS and reinsurance arrangements are becoming an increasingly popular way for cedents to access the capital markets and for investors to secure risk in more liquid, fully securitised form.

With standardised features and documentation, the private ILS and cat bond issuance platforms, such as Guy Carpenter and Marsh’s Cerulean Re help both cedents and investors by making transactions easier to enter into and more flexible.

By more efficiently transforming and securitising reinsurance risks, the end result of a more liquid investable note product is precisely what many investors are looking for in 2020, as evidenced by the levels of 144a catastrophe bond market activity and resurgent investor interest in cat bonds in general.

Isosceles Insurance is a multi-domicile structure, with offerings in Bermuda, Guernsey, Barbados and also onshore in Vermont.

It has been offering cell captive and rent-a-captive services for a number of years now, also helping clients to access reinsurance capital sources as well.

It’s not clear at this time whether the same structure will be used for Isosceles Re, or whether a new vehicle will be registered to perform this 4(2) focused transformer role for GC and MMC.

Isosceles has already got the capability to act as a risk transformer, for accessing the capital markets. So it may be that the new offering can utilise the already registered and market-ready vehicles.

It will be particularly interesting if through Isosceles Re an onshore U.S. issuance vehicle could be made available (given Vermont is one of its locations), as that could meet the mandates of certain U.S. investors that struggle with offshore domiciles for tax reasons.

The availability of an increased number of issuance platforms is a positive step for the ILS market, as more transformer options allow greater competition and provide increased flexibility for cedents and investors.