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Horse Capital I could open ILS market to new opportunities: Dubinsky, WCMA


Capital market investors were “well placed” to support the recent Horse Capital I DAC motor third-party liability loss ratio ILS, catastrophe bond like transaction, and its successful completion could open the ILS market to new opportunities, according to Bill Dubinsky of WCMA.

Willis Capital Markets & Advisory (WCMA), the investment banking and insurance-linked securities arm of insurance and reinsurance broking consultancy Willis Towers Watson, acted as the sole structuring agent and joint bookrunner for Assicurazioni Generali’s recently issued Horse Capital I liability cat bond transaction.

The Horse Capital I motor liability ILS deal its life at just €180 million in size, with three tranches of notes offering investors different risk and return profiles all sized at €60 million each. By settlement the transaction had grown to €255 million, with each of the three tranches upsizing to €85 million.

The innovative ILS transaction was structured to provide collateralised reinsurance protection to the motor third-party liability (MTPL) loss ratio of a portfolio of subsidiaries of Generali in Europe, on a combined basis.

In achieving this, WCMA brought a new peril to the catastrophe bond market. Motor third-party liability loss ratio reinsurance deals are not completely new to ILS investors, a number have been privately transacted in recent years, but as a full catastrophe bond type issuance this deal is a first.

As a new type of ILS deal investors need to gain comfort with the risk they are set to assume, but WCMA believed that the ILS investor community was ready for this type of structure.

Bill Dubinsky, Head of ILS at Willis Capital Markets & Advisory, explained; “From the onset, we believed that capital markets investors were well placed to support this type of risk (i.e. MTPL loss ratio). By structuring the transaction to meet the requirements of investors for transparency as well as the robustness of payment mechanics, we achieved an efficient and effective hedge for Generali supported by a broad panel of investors.”

WCMA explained that the fully-collateralised reinsurance coverage provided by Horse Capital I DAC is designed to protect Generali Group against a deterioration of the motor third-party liability loss ratio of the portfolio, as calculated on an annual ultimate loss basis, for twelve core European subsidiaries (in aggregate) across seven countries in Europe.

As a result of the capital market backed reinsurance coverage, Generali will be able to “better manage the volatility of its loss ratio and solvency ratio on one of its core lines of business,” WCMA said.

“Through this transaction, Generali opens the door to substantial opportunities with innovative ILS risks for both investors and potential sponsors going forward,” Dubinsky continued.

The Horse Capital I ILS transaction could open the ILS market to a number of classes of business which can be triggered using a loss ratio, which could ultimately open the market to become a growing provider of reinsurance capacity to shorter-tailed liability risks.

Tony Melia, CEO of Willis Re International, added; “We are very pleased that Generali, one of the leading insurers globally, brought this exciting transaction to market. It demonstrates Generali’s ability to optimise its usage of reinsurance and other risk mitigation techniques to support the achievement of key financial objectives.

“With the implementation of Solvency II we are seeing increasing interest from leading insurance groups to work with Willis Towers Watson to structure innovative covers that meet their specific needs”.

Rafal Walkiewicz, CEO of Willis Capital Markets & Advisory, also said; “In recent years we have faced unprecedented growth in natural catastrophe cat bonds issuance but innovation outside of nat-cat risk has been slow. Willis Capital Markets & Advisory prides itself on structuring innovative solutions to offer capital market investors the opportunity to buy directly into a full spectrum of insurance risk. Working side by side with our Willis Re colleagues we deliver new products that help our clients benefit from capital markets disruption of the traditional reinsurance market”.

You can read all about the Horse Capital I DAC ILS deal in the Artemis Deal Directory.

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