Bermuda-based Maiden Holdings, a company that provides non-catastrophic specialty property & casualty reinsurance products through a range of subsidiaries, is creating an innovative offering with a blended collateralized reinsurance and debt approach.
Maiden Holdings has begun to look at how it can move beyond being a pure reinsurer and how it can move into the realm of the capital provider or re/insurance financier, with a product that it is targeting at European mid-size insurance companies as the Solvency II regulatory environment approaches.
European insurers may need to boost their capital levels in order to satisfy the Solvency II regime. Maiden has spotted an opportunity to become a capital provider to these firms and has partnered with a Dublin based asset manager that is focused on creating debt solutions for the regulatory capital needs of insurers.
Interestingly, Maiden is blending these debt solutions along with the provision of collateralized reinsurance, as a way to provide a capital boost which meets the high-quality of capital requirements of the Solvency II regime.
President and CEO of Maiden Holdings Arturo Raschbaum commented during the firms Q3 earnings call; “In the regional and specialty insurer market segment in Europe we’re also beginning to market our unique capital solutions approach to capital-sensitive small and midsize companies with a blend of traditional reinsurance solutions that are collateralized and partner-provided capital market solutions.”
On the debt side Raschbaum explained; “We recently established a strategic partnership with a very unique asset manager based in Dublin the insurance regulatory capital. They are focused on originating and developing subordinated debt solutions that effectively respond to the regulatory capital needs of private insurers and, in combination with our collateralized reinsurance, will assist in delivering highly differentiated solutions to regional and specialty insurers in Europe and beyond.”
Maiden is not targeting this opportunity expecting to see a huge take up straight away, rather seeing it as an opportunity which complements the firms strategy.
“I think it’s going to be a situation that we don’t expect to see meteoric growth, but we definitely expect to see and are seeing deal flow developing,” Raschbaum explained.
Commenting on the Dublin-based asset manager partnership he said;”The interesting part of the technology and approach they’ve developed is that subordinated debt with a seven to 10 year duration is actually quite responsive to the capital needs of many of the companies that are going to be capital constrained in the Solvency II environment.”
By combining the debt with the collateralized reinsurance that Maiden offers, the firm hopes to offer a new set of clients a “differentiated balanced approach to capital” Raschbaum said. “We frankly think it’s a nice entry point for us into that market.”
While this isn’t strictly ILS, or even an investment opportunity, it is interesting. Insurance-linked investments manager Twelve Capital operates a debt strategy alongside its ILS fund and other ILS managers have been looking at how they can provide capital in different ways to small to mid-sized insurers.
Providing capital solutions alongside ILS makes for an interesting mix for investors and it is expected that more specialists in this area will emerge over time, particularly as regulatory requirements force insurers to hold more capital. Alongside that, collateralized reinsurance can have more capital weighting as well, so the combination with debt as a capital solution may be quite compelling for insurers seeking to become Solvency II compliant.
This is another interesting trend in the reinsurance market which could see more opportunities for the capital markets and reinsurance strategies to merge and converge, which as a result could mean more opportunities for investors to access insurance-linked returns through different instruments.