Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

ILS an important, enabling part of our business: Blerina Essen, myLotto24


Following the successful completion of its latest, more flexible insurance-linked securities (ILS) transaction, myLotto24 Limited’s Managing Director, Blerina Essen, discussed with Artemis the company’s participation in the space, and how ILS has become an important part of its risk management structure.

Blerina Essen, myLotto24UK-based lottery provider myLotto24’s latest ILS transaction, issued using Hoplon III Insurance Ltd., is the third time it’s utilised the ILS space for a source of jackpot insurance and reinsurance, and Artemis was eager to hear why the entity initially looked at the sector for its risk transfer needs.

“In 2011, myLotto24 actually pioneered the use of ILS in the lottery betting market, having invented jackpot-matching lottery betting in 2008, using a traditional insurance model. Part of the reason for switching was customer experience. When customers bet on lotteries, hoping to win millions, they trust us to pay out efficiently. The ILS mechanism, through its collateralised cover, ensures the cash is readily available, compared to traditional insurance which, at the time, took a bit longer.

“What’s really interesting is that when we first brought this opportunity to the market in 2009, it took 18 months to familiarise the ILS market with what we do and get the cover placed. Our last placement happened very quickly and was oversubscribed,” said Essen.

When compared with traditional insurance products, Essen explained that ILS is a fully-collateralized security, which, as well as providing rapid payout, also offers wider cover and an aggregate retention on products.

Essen, expanded on this: “Our latest placement is also far more flexible, and gives us real competitive advantage through the ability to add new partners and products at any time to match our growth ambitions. So, through the ILS, we’re able to improve customer experience, increase competitive advantage, and reduce risk at the same time.”

While the capital markets offers a deep, diversified, and as highlighted by its response to 2017 catastrophe events, reliable pool of capital, Essen told Artemis that it isn’t just the coverage amount that myLotto24 looks at when assessing its risk transfer needs.

“Will it pay out quickly if our customers win? Can it help us reduce risk? Is the coverage flexible enough to help us grow? If it can answer each of those questions positively, we’ll look at it,” said Essen.

After first entering the ILS market in 2011, with the issuance of a €70.5 million Hoplon Insurance Ltd. deal, myLotto24 has continuously looked to build on that, using ILS in a way that helps it give its clients a “great winning experience, and to help us match our international growth ambitions.”

Describing the new placement as pioneering, Essen said that the flexibility it offers, coupled with the way it’s activated for investors, “has not been seen in the lottery betting market before.”

Like its predecessor, Hoplon III Insurance Ltd. leverages both catastrophe bond and collateralized reinsurance technology, and Essen explained how the 2018 renewals offered much more flexibility when compared to its first ILS issuance, roughly seven years ago.

“When we placed the first ILS, we had only two products covered and only one major market to offer such products. Today, we have more than 27 products covered in multiple markets – including some of the largest jackpot products in the world. And, we can add more products and partners at any time. That’s a huge advantage for us in such a competitive sector where speed to market really matters.

“For investors, the 2018 cover not only provides the flexibility of adding products, it only ensures that the risk is measured on each draw and the investors are paid for the risk that they take,” said Essen.

The new structural changes were clearly well received by investors, with the company’s latest ILS placement being oversubscribed. Essen highlighted that the return on the investment is based on the risk that the investors are willing to assume, making it fair and easy to measure.

“Wow. This is a smart transaction,” was the response of one of the investors, according to Essen.

As ILS expands its remit, its influence and value is increasing in many different perils and in many different parts of the world, and Essen was keen to underline the value ILS brings to myLotto24.

“ILS Capital is important for our business as we pay large jackpots. In fact, we hold the sector record for the largest ever single payout of €48 million. The ILS is a real enabler for us to be able to offer customer access to the world’s largest jackpots.

“We have a really sophisticated risk management structure, of which ILS is just one part – albeit an important one. As we pioneered the use of ILS nearly ten years ago, we’re very comfortable with how it fits within our business – although we are always looking to build on it,” said Essen.

To conclude, Essen told Artemis that after working on all of the company’s ILS transactions, she feels the “market has progressed massively, especially by becoming much more flexible and accommodating for our industry. It is great to work with some of the best in the market like Swiss Re (deal broker) and Norton Rose Fulbright (deal counsel) and all the investors behind our deal.”

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