It appears that Florida and southern U.S. primary insurer Safepoint is going to expand its use of efficient and collateralized reinsurance capital, with Pompano Re Ltd., a new special purpose insurer (SPI), having been registered by the firm.
Safepoint is already a sponsor of catastrophe bonds, with its fourth cat bond issuance in the market right now, a $75 million Manatee Re III Pte. Ltd. (Series 2019-1) transaction.
That newest cat bond is being issued in Singapore, as Safepoint looks motivated by the grant program and savings on issuance costs that are available there at this time.
But its use of Bermuda as a domicile for insurance-linked securities (ILS) structures looks set to continue as well, with SPI Pompano Re Ltd. having been established and registered on the island in April 2019.
It’s unclear exactly what Safepoint may use Pompano Re Ltd. for at this time. But we can speculate, of course.
Primary insurers are increasingly finding innovative ways to bring third-party capital into their businesses, not just through typical syndication of reinsurance or cat bonds, but also through owned structures that enable them to lay off portions of their risk more directly to capital market investors.
Pompano Re Ltd. is unlikely to be a new catastrophe bond issuance vehicle for Safepoint for a number of reasons. The Manatee Re II SPI was only registered and used in Bermuda for the first time in the insurers $200 million cat bond issued in 2018.
Meaning Safepoint does not really require a new cat bond issuance vehicle in Bermuda at this time.
Also pointing to a different type of usage for this new Safepoint ILS vehicle is the fact senior executives, CEO David Flitman, CFO John Burns and Controller Steve Hoffman, are all listed as Directors of Pompano Re Ltd., alongside Bermuda-headquartered ILS and reinsurance management, servicing, risk transformation and fronting specialist Horseshoe Group executives including CEO Andre Perez.
Cat bond issuance vehicles tend not to have any directors from the sponsoring ceding company, instead only having directors from law firms and insurance managers.
As a result, it seems Pompano Re Ltd. is set to act as some kind of internal reinsurance vehicle, perhaps to cede Safepoint risk to the capital markets in another form than cat bond.
Pompano Re could enable Safepoint Insurance to access the capital markets more efficiently on a regular basis, making ILS investors into a an even more core part of the companies reinsurance program as it grows and expands its book.
The need for a growing amount of reinsurance is assured, as Safepoint recently expanded to add coverage in new states Alabama and Mississippi to its operations.
That suggests a growing need for access to efficient reinsurance capacity to support its expansive underwriting, which perhaps will make quota share arrangements attractive, something that could be routed through Pompano Re Ltd. directly to capital market or ILS fund investors, akin to a sidecar.
By establishing Pompano Re Ltd. as an internal use SPI, Safepoint can enhance its access to the capital markets and collateralized reinsurance, as well as own the ability to leverage this source of capacity within its business.
Effectively, the use of Pompano Re as a third-party reinsurance capital vehicle dedicated to Safepoint will achieve similar to the catastrophe bonds, but perhaps in a more seamless manner and allowing for faster decision-making to be made as well.
Cat bonds have a long lead time due to the structuring and legalities involved. Where as having its own dedicated vehicle to aggregate risk and cede it to capital markets backed sources of reinsurance capacity, could be a particularly efficient addition to Safepoint’s reinsurance program arrangements.
Of course, we can’t confirm exactly how Pompano Re Ltd. will be used by Safepoint and if any further details emerge we will update you.
But the main story here is optionality and efficiency. As, with a dedicated SPI vehicle such as this, Safepoint can tap collateralized sources of reinsurance capacity as and when it chooses, to benefit from the low-cost of reinsurance capital.
We expect more primary insurers will establish their own vehicles for collateralized reinsurance access in years to come and that having your own SPI or transformer type vehicle, to facilitate third-party capitals participation in your reinsurance program more seamlessly, will become an increasingly common occurence.
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