Peak Reinsurance Company Limited (Peak Re), the Hong Kong based global reinsurer that is majority backed by Fosun International, has completed a ground-breaking insurance-linked securities (ILS) transaction, successfully establishing and launching the first Asian reinsurance sidecar deal.
Lion Rock Re Ltd. is a recently established Bermuda special purpose insurance (SPI) vehicle that has been registered to support the transaction.
The deal, which saw investors subscribe for $75 million of notes issued by Lion Rock Re, will provide Peak Re with a source of capital markets backed collateralised retrocession, covering part of the reinsurers’ global property reinsurance portfolio.
To effect the arrangement, Lion Rock Re entered into an exclusive quota share agreement with Peak Re, reinsuring part of the firm’s property catastrophe portfolio.
Commitments amounting to $75 million were secured from a panel of third-party investors globally, with the capital serving to fully collateralised the underlying retrocession agreement.
“Peak Re is pleased to be a pioneer in launching Asia’s first sidecar transaction in the reinsurance industry. It marks an important milestone in the reinsurance market of Hong Kong as well as Asia,” explained Franz Josef Hahn, Chief Executive Officer of Peak Re. “The transaction is supported by a range of high-quality global investors who see the investment as a one-of-a-kind opportunity to invest alongside Peak Re and gain exposure to a unique geographically diverse property portfolio.”
“Peak Re was established in 2012 to support the needs of communities and emerging middle class societies by meeting reinsurance needs covering life, health and non-life risks, in Asia and around the globe. We are very pleased with the positive reception from the ILS (Insurance-Linked Securities) investors that recognised our strong track record. We look forward to continuing to broaden our partnerships with the capital markets in the future,” added Lawrence Cheng, Managing Director, Underwriting at Peak Re.
The transaction is expected to close in mid-December 2018 and Aon Securities Inc. acted as the structuring and placement agent of Lion Rock Re Ltd.
It’s encouraging to see an Asia domiciled sponsor of a reinsurance sidecar, the first seen from the region. It signals an increasing comfort in the use of third-party capital among re/insurers, as the capital markets become increasingly embedded within the business models of traditional underwriters.
The use of the capital markets to assist in providing capacity for global property catastrophe risks through a sidecar structure makes a lot of sense for re/insurers looking to become more active globally and to enhance the amount and efficiency of capacity they can put to work in peak peril zones.
For more details on reinsurance sidecar investments and transactions view our list of collateralized reinsurance sidecars.