After increasing the size of its reinsurance sidecar transaction in 2021, followed by the issuance of its first catastrophe bond earlier this year, Hong Kong domiciled reinsurer Peak Re aims to further leverage the insurance-linked securities (ILS) market to close the protection gap.
This is according to the company’s Chief Executive Officer (CEO), Franz Josef Hahn, who spoke with Artemis around the annual meeting of the reinsurance industry in Monte Carlo, about the firm’s alternative capital ambitions.
“Peak Re was founded to support the needs of communities and the emerging middle class in Asia and beyond. The potential is promising. By 2030, two out of three middle-class members will be Asian, according to a study by the Brookings Institute,” said Hahn.
“Supporting Asia’s growth while narrowing the protection gap will require significant capacity beyond traditional ones.
“As a result, Peak Re has tapped into the insurance-linked securities market since 2018 through a reinsurance sidecar transaction. Lion Rock Re Ltd. was the first sidecar transaction sponsored by an Asia-based reinsurer,” he continued.
Lion Rock Re provides the company with access to efficient retrocessional capacity from the capital markets. Peak Re first launched the Bermuda domiciled sidecar structure in late 2018 with a $75 million issuance.
In 2020, the reinsurer renewed the sidecar with a $77 million Lion Rock Re II issuance. The following year, Peak Re renewed the sidecar at a record size of $107 million, which shows that its vehicle is clearly gaining increasing investor support.
It remains to be seen whether the carrier will renew its successful sidecar structure for a fourth time, but Hahn emphasised that, going forward, it will continue to keep its options open for alternative capital to support its growth.
“Indeed, ILS capacity has become an integral part of Peak Re’s retrocession strategy as it increases profitability and reduces risk and volatility,” said Hahn. “Over the long term, we aim to bring more capacity through the ILS market to help close the protection gap in emerging Asia and beyond.”
After issuing the first sidecar transaction sponsored by an Asian reinsurance company, Peak Re sponsored its first catastrophe bond in 2022, a $150 million Black Kite Re Limited transaction. It marked the first 144A cat bond issued by a Hong Kong special purpose insurer, and became the second cat bond structure to have been located in Hong Kong.
Expanding on Peak Re’s first cat bond, Hahn told Artemis that Asia is still in an early stage of development in terms of ILS, including cat bonds.
“This issuance is significant in validating the strong interest from investors in high-quality reinsurance risks. It is an important step in getting related parties familiar with structuring such bonds.
“Understanding of the insurance-linked securities asset class has only recently increased in Asia alongside each new transaction. Transaction costs will continue to go down with more issuance and helps to support a critical ecosystem of brokers, legal advisers, book runners etc.
“While developing new ILS solutions in our region is undoubtedly important, it is equally important to clearly explain and communicate the benefits and risks of such solutions to the growing investor base,” concluded Hahn.