Lloyd’s and Bermuda insurance and reinsurance company Neon Underwriting has successfully renewed its UK insurance-linked securities transaction, which is akin to a sidecar, with a slightly enlarged $77 million issuance of notes from the NCM Re (UK PCC) Ltd vehicle.
Last year, Neon was the first to register and receive approval from the UK’s Prudential Regulation Authority (PRA) for what became the first insurance-linked securities (ILS) vehicle to transact business in the United Kingdom, NCM Re.
NCM Re entered into a $72 million quota-share reinsurance agreement with Neon’s Lloyd’s of London syndicate in that transaction, thus acting as a collateralised reinsurance sidecar to the syndicate, augmenting its capacity utilising third-party capital market investor funding.
For 2019 the NCM Re transaction has renewed slightly larger at $77 million, a very small increase.
Our sources said that the 2018 transaction faced some trapping of its collateral due to catastrophe events during the year, which may have dampened investor appetite for this renewal somewhat.
Investor appetite for collateralised reinsurance sidecar renewals has been impacted by the successive years of losses that some vehicles have faced.
In addition, some broker-led efforts to enforce more stringent collateral retention rules on certain sidecars has also made some less popular with investors in recent weeks, we understand.
The new NCM Re transaction launched on 1st January 2019 and features a $77m collateralised quota share of Neon Syndicate 2468’s property treaty reinsurance and direct and facultative portfolios.
That’s the same mix of business as seen in the 2018 NCM Re sidecar arrangement.
Mark Gibson, Alternative Capital Director at Neon, commented on the transaction, “We are delighted with the continued support from existing investors and that new investors enabled us to increase the size of the transaction this year.
“This is quite an achievement given ILS market conditions and we are pleased to have sponsored the first renewal transaction under the UK regime, facilitated by early engagement with the Prudential Regulation Authority.”
It’s encouraging to see Neon continuing its use of third-party capital to support its Lloyd’s underwriting operations and investors will have been pleased to see this renewal succeed.
For more details on reinsurance sidecar transactions and investments view our list of collateralized reinsurance sidecars.