U.S. primary insurance giant Liberty Mutual has returned to the capital markets to boost its reinsurance at mid-year, with the issuance and sale to investors of a $278 million series of notes from its Bermuda segregated accounts reinsurance sidecar vehicle, Limestone Re Ltd.
This is the second time that Liberty Mutual has tapped the capital markets directly using the firm’s Limestone Re Ltd. collateralized reinsurance sidecar vehicle.
Liberty Mutual first utilised Limestone Re in December 2016, when the firm secured a $160 million source of collateralized reinsurance in the first issuance from its new Limestone Capital Markets platform.
That issuance ran on-risk throughout the catastrophe heavy year of 2017 and while it was rumoured that the Limestone Re sidecar could have been exhausted by Liberty’s losses from the hurricanes and other events, we’ve yet to see any confirmation of the fate of the 2016 Limestone Re notes.
Whatever happened in 2017, investors were clearly not deterred and Liberty Mutual has now come back to the capital markets for a mid-year Limestone Re issuance, to top up its collateralized sources of reinsurance capital.
This mid-year issuance is significantly larger as well, with Limestone Re Ltd. issuing $278 million of 2018-1 Class A notes from a segregated account, which were then placed with institutional investors and ILS funds, we understand.
We assume that the portfolio covered by this Limestone Re issuance is again a mix of Liberty Mutual’s business from its U.S. property catastrophe, U.S. homeowners and London Market specialty insurance operations.
The $278 million of Limestone Re 2018-1 sidecar notes have an expected maturity date of March 1st 2022, meaning they provide Liberty Mutual with reinsurance cover that runs across more than three years.
It appears that Liberty Mutual is using the Limestone Re and Limestone Capital Markets platforms as a type of replacement for catastrophe bonds, having not issued a cat bond since 2012, giving it a vehicle to access the capital markets for reinsurance on its own terms, but while maintaining some alignment with investors as well.
Limestone Re gives Liberty Mutual a way to leverage efficient third-party capital from institutional investors within its underwriting business, both to benefit from the reinsurance coverage but also, and perhaps more importantly, to augment its own capacity by using low-cost capital market financing.
Liberty’s use of Limestone is also an example of primary insurers bringing the capital markets more directly into their businesses, having greater control over the use of third-party reinsurance capital and aligning itself with the investors backing the transaction.
For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars.
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