Recent Isosceles private cat bond covers motor insurance risks

Sources have told us that the recently issued $21.5 million Isosceles Insurance Ltd. (Series 2021-H) private catastrophe bond transaction provides reinsurance coverage for a motor insurance portfolio.

Isosceles Insurance Ltd., or Isosceles Re as it’s also known, is a private insurance-linked securities (ILS) and catastrophe bond issuance platform operated by Marsh McLennan and reinsurance broker Guy Carpenter.

These private cat bond or ILS issuance platforms are designed to make it simpler and more cost-effective for cedants to access sources of capital market reinsurance and retrocession, but can also be used by ILS funds as a way to transform reinsurance arrangements into an investable product more easily consumed by a cat bond focused fund strategy.

But in this case, we understand the transaction featured a less typical peril than the property catastrophe focus of most private cat bond deals, in being motor insurance related.

We’ve been told that the risks underpinning the latest Isosceles Insurance ILS issuance are motor related, we believe motor third-party liability.

More specifically, we’re told it covered a portfolio of US auto insurance, covering the protection buyer against unexpected increases in its motor specific loss ratio.

So the noteholders in this Isosceles private cat bond issue would face losses only when the ceding US auto insurer faced a significant increase in its motor loss ratio, we assume, so it provides excess of loss reinsurance protection, effectively on an indemnity basis, we understand.

Auto insurance and motor third-party liability risks have featured in the ILS market before, with the late 2016 Horse Capital I DAC cat bond the most obvious example, as it provided motor third-party liability reinsurance protection to insurer Generali.

Another example we’ve covered before would be the Newport 2019-1 private ILS deal, that connected auto lines motor third-party liability risk with capital market investors as well.

An older example might be the AXA sponsored FCC SPARC 2007 transaction, that securitized quota share reinsurance on motor insurance books.

Outside of those two deals, there are some elements of auto coverage in a number of catastrophe bonds, including most of USAA’s Residential Re series from the last few years, which include coverage for auto policy flood losses.

Private ILS transactions featuring auto and motor lines business are also transacted directly between some ILS funds and ceding companies, with a number of the more diversified ILS fund managers having entered into a handful of these kinds of reinsurance arrangements.

But, in general, motor and auto line of business risks are far less frequently seen in the catastrophe bond and broader ILS market, so it’s notable to discover that this recent deal from Isosceles Insurance featured this kind of peril.