Resolute Global Partners, a registered investment advisor focused on niche opportunities in the insurance and reinsurance space and formerly known as ILS Capital, has aligned with broker Gallagher Re and catastrophe modeller Karen Clark & Company (KCC) to launch a new reinsurance product named Footprint.
Footprint is claimed as a “completely new type of reinsurance contract”, focused on natural catastrophe risk in the United States and employing advanced risk modeling technology to deliver solutions for insurance companies and investors, Resolute states.
The new product can solve a number of issues that have plagued the reinsurance and insurance-linked securities (ILS) industry, Resolute says.
These include solving issues related to trapped capital, extended settlement times, economic inflation, social inflation, non-modeled risks, and pricing uncertainty, the company claims.
Effectively, Footprint as a reinsurance product involves a cedent insurer submitting its exposure file and this is fixed at the inception of the contract.
Should a covered event occur, the risk modeller KCC will overlay the intensity footprints of the event on the insurer’s fixed exposure profile, to calculate the cedent’s ultimate loss.
The loss, as determined by the model, is then paid to the insurance company within 30 days, while the contract is automatically commuted within 30 days of maturity, so that investors in the risk can receive their original investment plus any profits, or less any losses, immediately.
It’s the whole package that is the unique selling point here, as bespoke hybrid parametric-type arrangements, or modelled-loss footprint triggers, have been seen before that involve event parameters (modelled or otherwise) being overlaid on top of an exposure footprint.
But combining that approach with advanced modelling processes and structural innovation, using the fixed exposure data to define the risk, with the guaranteed 30 day payout clause, and the certainty of a commutation structure, could make these an attractive investment proposition, it seems.
Tom Libassi, Co-Founder and Managing Partner of Resolute Global, further explained, “We’re proud to lead the market with another innovative insurance solution. Footprint gives investors the opportunity to capitalize on the current attractive rate environment – freed from the problems the industry has been grappling with over the past several years. Given the much-improved structure, terms, and pricing that Footprint provides to insurance companies and investors compared with other contracts, we believe this product has the potential to transform the reinsurance industry.”
KCC’s advanced catastrophe modeling technology is used to create the high-resolution catastrophe and severe weather event intensity footprints, which are then superimposed on a portfolio of properties (the fixed exposure data) to estimate the resulting losses to the portfolio of risk.
The first Footprint transaction has been completed with a focus on severe convective storms, but its application is to any type of catastrophic event, including wildfires, hurricanes and earthquakes.
The product, unlike parametric triggers, industry loss warranties and catastrophe bonds, “provides a more accurate assessment of storm losses than what is currently available, giving insurance companies cost-effective coverage and critical liquidity post-event while also offering investors a more efficient way to access the property reinsurance market and earn attractive returns,” Resolute Global and the other parties claimed.
It seems to us that there is no reason a Footprint reinsurance transaction couldn’t be securitized into a catastrophe bond format, with the terms included in the security documentation. While these are also technically parametric in nature, given the event parameter and intensity footprint used to derive the loss impact to a fixed portfolio of risk.
In addition, it’s perhaps worth considering how an industry exposure data could be overlaid with an event parameter and intensity footprint, to make for an interesting alternative to an ILW.
Doug May, President, Gallagher Re North America, also commented, “We are pleased to have advised Resolute Global on this innovative reinsurance contract. In this challenging marketplace, we believe this new product will help expand the sources of capacity for our clients.”
It’s fantastic to see innovation in the catastrophe reinsurance product offering itself, while tailoring it to be more friendly to insurance-linked investors and solve certain problems they have experienced in recent years.
How popular this is though could come down to its pricing, as it will still need to be relatively competitive with more traditional catastrophe reinsurance offerings in order to gain significant market traction.
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