Hyperion X, the data analytics focused entity of the Hyperion Insurance Group, the global broker and consultancy that includes RKH Reinsurance Brokers, is partnering with Vario Partners LLP to launch a collateralised whole-account reinsurance offering backed by insurance-linked securities (ILS).
Vario Partners was launched as a specialist and capital markets focused risk advisor in late 2014 by former PwC exec’s aiming to facilitate the bringing together of whole-account portfolios of insurance or reinsurance risk and the capital markets, through securitisation or ILS means.
With a focus on insurance analysis and modelling, Vario Partners had previously been working with reinsurance broker Guy Carpenter to launch a non-catastrophe insurance linked securities investment vehicle and fund which never came to fruition, but has now pivoted to work closely with the Hyperion group of companies.
Hyperion X is using its analytical skills to work alongside Vario in creating a product offering of aggregate, multi-year stop loss capacity for whole-accounts, structured as insurance-linked securities (ILS). It’s assumed RKH Reinsurance Brokers will be the sales conduit for the new offering.
The timing could be very good for such a product, given the current challenges faced by insurance and reinsurance companies due to the Covid-19 coronavirus pandemic, as well as pressures from underperformance in certain lines of business, heavy losses from recent catastrophe years and an expectation of rising casualty claims.
All of which suggest that whole-account solutions that can stem losses at a certain level and that provide the certainty of a fully collateralised reinsurance product, could be very attractive to insurers as a reinsurance protection and to reinsurers as retrocession as well.
Multi-class and line retro has in particular been very popular in recent years, but a whole-account solution takes that to another level of usefulness. Think Lloyd’s syndicates and global re/insurance players as the broad potential client base.
Hyperion X further explained that whole-account risk transfer backed by ILS can offer an an attractive contingent capital alternative in the current market environment. These products can also add greater certainty to cedents technical results, the company said.
That’s the protection buyer demand, which is almost certain to be there for any product launched by Hyperion X and Vario.
On the other side, investor demand for insurance-linked securities (ILS) and direct reinsurance linked investments also remains high, even considering the financial market volatility.
While current volatility may pause the ILS market for a time, a new opportunity such as this whole-account solution could prove very attractive to large institutional investors, while at the same time investors around the globe are actively looking for less correlated investment classes that can defend their portfolios against the ongoing financial market contagion.
Making this an opportune time to launch a product like this to the market.
A collateralised stop-loss for the whole-account, in reinsurance or retrocessional form, would improve protection buyers regulatory solvency ratios.
These products will also benefit buyers by allowing them to have greater certainty in their underwriting operations, lowering their cost-of-capital and improving their franchise value, Hyperion explained.
Being whole-account products, these collateralised reinsurance solutions backed by ILS will present an interesting diversifier for capital markets investors and ILS funds, so could prove attractive.
Bryan Joseph, founding partner, Vario Partners LLP, explained, “Whole account risk transfer insurance linked securities meet the needs of insurers and reinsurers seeking to reduce underwriting and credit concentration risks. We believe that including a layer of contingent capital in a reinsurance structure provides companies with enhanced shareholder returns and protection in those years when an accumulation of events and reserve development can impair shareholder value.”
Chairman of Hyperion X’s sister company RKH Reinsurance Brokers, Elliot Richardson, added, “This important collaboration makes new capacity available at a time when reinsurance and retrocession cover, particularly whole account stop-loss, is at or near all-time lows.”
David Flandro, Managing Director, Hyperion X Analytics also said, “This structure uniquely benefits earnings volatility and balance sheet strength at a time when retrocession rates-on- line have increased, and carrier financing costs are rising sharply. We are bringing this to market now to give (re)insurers access to a new source of stable, competitive capacity during this volatile period which enhances balance sheet strength for future profitable growth.”