Hudson Structured aims to acquire assets of bankrupt Scottish Re

Insurance-linked securities (ILS), reinsurance and transportation investment manager, Hudson Structured Capital Management Ltd., has signed an agreement that could see it acquiring a number of reinsurance company assets from the bankruptcy arrangements of Scottish Re Group.

Funds managed by Hudson Structured Capital Management, which was established by ex-Goldman Sachs partner and structured finance head Michael Millette and invests across the reinsurance spectrum, have entered into a stock purchase agreement with Scottish Re entities.

The arrangement is part of Scottish Re’s sale and restructuring plan for its Cayman Islands subsidiary, Scottish Annuity & Life Insurance Company (Cayman) Ltd., and that firm’s U.S. subsidiary, Scottish Holdings, Inc., a process going through Chapter 11 bankruptcy proceedings in the U.S. right now.

On completion of the stock purchase agreement, Hudson Structured would own 100% of the stock of a reorganised Scottish Annuity & Life Insurance Company (Cayman) Ltd.

But there is more at stake than just the Cayman annuities and life insurance company, the Chapter 11 will also see Hudson Structured acquiring other subsidiaries including Scottish Re (U.S.), Inc. and Scottish Re (Dublin) dac.

These additional subsidiaries are not considered to be debtors in the Chapter 11, meaning that contracts and relationships between these entities and their reinsurance and other counterparties, vendors, and employees are largely unaffected by Chapter 11 filing.

Scottish Re said that its Scottish Annuity & Life Insurance Company (Cayman) Ltd. unit faces, “acute liquidity issues in the first quarter of 2018 as a result of the historically adverse performance of Scottish Re’s legacy book of yearly renewable term (“YRT”) reinsurance business, and the growing strain created by the upcoming payments due on 20 quarters of accrued and deferred interest on trust preferred securities,” which the firm guaranteed.

As a result of the capital liquidity pressures Scottish Re faces, this Chapter 11 agreement was devised to help its Annuity & Life company to continue as a going concern during the reorganisation process, continue to participate in the U.S. life reinsurance and annuity industries after ownership changes, address legacy liabilities, preserve jobs and enable it to maximise shareholder value.

The Board of Directors of Scottish Re voted on January 24th 2018 to go ahead with the Chapter 11 for the Scottish Annuity & Life Insurance Company (Cayman) Ltd., and SALIC’s U.S. subsidiary, Scottish Holdings, Inc. units and proceed with the sale and restructuring.

U.S. bankruptcy proceedings may dictate that an auction process to solicit alternative transactions takes place, but failing that or if no other bids come forward it is expected that Hudson Structured will close on the sale and restructuring arrangement, taking ownership of the various Scottish Re entities.

Scottish Re hopes that this will all be approved by the third quarter of 2018, including receipt of the necessary regulatory approvals.

It’s an interesting arrangement, as not only will Hudson Structured secure an investment in and ownership of a new going-concern, delivering insurance-linked returns through the restructuring of a recognised entity in life and annuity markets, but it also provides Hudson Structured with an established underwriting platform.

It’s not clear whether the motivations are to; acquire, enhance and sell on the Scottish Re entities; or to operate them to grow Hudson Structured’s own access to life and annuity risk; or to put the previously-rated underwriting platform to work in other ways.

Hudson Structured continues to demonstrate an ability to access the returns of insurance-linked business in a broad range of structures and transactions, delivering diversified returns from across the reinsurance spectrum to its investor-base.