Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

OmegaCat Reinsurance registered by AlphaCat as Class 3A transformer


AlphaCat Managers Ltd., the AIG owned insurance-linked securities (ILS) fund and collateralized reinsurance investment manager, has set up a new Class 3A Bermudian reinsurance transformer vehicle, OmegaCat Reinsurance Ltd.

OmegaCat Reinsurance Ltd. was registered in November 2018 along with a holding company OmegaCat Holdings Ltd.

OmegaCat Reinsurance Ltd. was then licensed as a Class 3A reinsurance vehicle in Bermuda in December 2018, meaning it was as good as ready to underwrite reinsurance or retrocession business on behalf of the AlphaCat managed ILS funds and investment mandates at that point in time.

We understand that OmegaCat Reinsurance will write business solely for the AlphaCat managed ILS strategies, providing the investment manager with a new vehicle through which to face the market and underwrite its reinsurance and retrocession risks.

Being licensed as a Class 3A, OmegaCat Re is not all that typical of a fully-collateralised transformer vehicle for an ILS fund.

There are a number of Class 3A’s that have been registered to write only collateralised reinsurance with no rating, but it is becoming more typical of those that have an ambition to go on to seek a credit rating in future.

Class 3 A’s have to maintain $1 million of required capital and surplus, which is a little more in the way of capitalisation than most fully-collateralised underwriting or transformer vehicle would usually want to have to keep on their books. Hence the majority of ILS transformers have been based around the special purpose insurer (SPI) vehicle in the past.

The Class 3 A reinsurance structure in Bermuda has already been utilised by a number of ILS fund managers, with some choosing to achieve a rating for these market facing transformers. These include Credit Suisse Asset Management with the unrated Bernina Re and LGT ILS with the rated Lumen Re.

The rated Class 3A’s such as Lumen Re enable an ILS fund manager to offer rated paper to ceding clients and to start building a market brand around their main reinsurance underwriting entities, hence it’s an attractive option to have on the table.

The structure is also used by some larger reinsurers as a transformer for their managed ILS strategies, but we understand these were largely registered as Class 3A with a view to the potential to secure a rating if they wanted to or because the owner had a licensed vehicle that wasn’t being utilised at the time.

So the registration and licensing of OmegaCat Re by AlphaCat could suggest that the ILS fund manager has an ambition to get this vehicle a rating in future as well.

The registration of OmegaCat Holdings Ltd. at the same time also suggests that the OmegaCat Re brand will become a key piece of the AlphaCat ILS fund management platform in time.

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