ILS Capital’s Prospero Re approved to write collateralized & traditional reinsurance

ILS Capital Management Ltd. has now received approval from the Bermuda Monetary Authority (BMA) for an expansion of the operating model of its reinsurance company Prospero Re Ltd., which can now write both fully collateralized and traditional reinsurance with an element of leverage.

We explained back in February that Bermuda headquartered ILS fund and investment manager ILS Capital Management was looking to add an element of leverage to Prospero Re, while still retaining all the benefits of collateralized coverage.

The company had submitted plans to restructure the operating model of Prospero Re, enabling it to create moderate underwriting leverage within its business model, so it could support tail risks and offer reinsurance products that would be more appealing to counterparties seeking a traditional transaction.

Now, ILS Capital Management has reported that Prospero Re has received BMA approval for the adjusted and expanded operating model, making it the first collateralized reinsurance company that can underwrite both traditional and collateralized products.

Prospero Re Ltd. is wholly owned by ILS Capital Management and was first licensed as a Class 3A reinsurer back in 2013. Prospero Re now has $250 million in statutory capital.

Prospero Re received an insurance financial strength rating (IFSR) of ‘A’ from Kroll Bond Rating Agency (KBRA) earlier this year.

Tom Libassi, Co-Founder and Managing Partner of ILS Capital, commented on the news, “We are pleased to have received the BMA’s approval of Prospero Re’s Amended Business Plan. The ability to write traditional and collateralized business, together with our rated balance sheet, allows us to be more capital-efficient while writing attractive new business and further increasing diversification.

“We intend to create in Prospero Re a low-leverage reinsurance company with sufficient capital to pay total losses that are expected to occur every 1,000 years. At the same time, we can offer investors attractive non-correlated returns, lower costs and even greater alignment of interests.”

ILS Capital Management also reported that it is seeing interest in Prospero Re’s new business model already, with a number of current cedents already agreeing to purchase non-collateralized reinsurance contracts from the reinsurer, while a number of reinsurance brokers have approved Prospero Re as a non-collateralized counterparty.

ILS Capital Management also highlighted its landmark $57 million securitization of trapped ILS capital, a first seen in the industry.

The ILS manager said that implementation of Prospero Re’s amended business plan is expected to reduce the amount of potential trapped capital it could experience in the future.

The introduction of some leverage and the ability to write traditional, rated covers as well as collateralized reinsurance through Prospero Re should reduce the amount of capital the investment manager has exposed to trapping from major loss events.