RISCfp, a company focused on financing solutions advisory and platform management, has launched a new managed treasury pool (MTP) notes offering, that can act as both investment and collateral solution for insurance and reinsurance uses.
The new product comes out of what we previously knew as Karson Management, a firm established by the team at RISConsulting Group and led by Derrell Hendrix, a veteran of the insurance-linked security and alternative risk financing / transfer sectors who’s background includes working with Hannover Re on some of the earliest capital markets backed reinsurance deals.
Now under RISC fp (RISC Financing Platform Services Limited, a Bermuda company), these RISCMTP-Notes can help insurers, reinsurers, ILS funds, institutional investors, corporate treasurers and others that want to diversify or reduce their short-term investment risk as they pledge collateral.
Effectively, the notes are a listed, rated fixed-income security offering liquidity to holders, designed to provide an attractive and efficient alternative to other forms of collateral, with application in the collateralized reinsurance and insurance-linked securities (ILS) space.
The company believes that these notes allow users to diversify “with unprecedented efficiency”, as a form of liquid investment with “unquestioned credit quality” that can also be used as collateral.
The RISCMTP-Notes are a Moody’s-rated “(P)Aaa(sf)”, listed, debt security, that brings together the liquidity of high-quality bank deposits with the quality and managed returns of a government money market fund, RISCfp said.
Derrell Hendrix, CEO of RISCfp, explained, “RISCMTP-Notes are designed to serve as versatile investment and collateral instruments that are more liquid, capital-efficient and secure than short-term credit securities and bank deposits [e.g. commercial paper and CDs], prime money market funds and ETFs.
“In short, investors’ money works harder and more reliably with RISCMTP-Notes, the latest in a long line of market innovations that RISCfp and its affiliates have fashioned to meet critical needs in the financial markets.”
Market alternatives for pledging collateral are limited to instruments ranging from cash and letters of credit, to in-house or separately-managed accounts holding investments such as US Treasuries), or investments in credit assets such as short and medium-term securities.
All of these alternatives present challenges that RISCMTP-Notes have been specifically designed to address, RISCfp says.
The challenges addressed include credit concerns, liquidity constraints, collateral eligibility, and operating costs, as well as expert asset management expertise and market risk (e.g. “run-on-the-bank” risk).
RISCMTP-Notes represent a proportional interest in assets that back them, such as US Treasury Bills, notes, or government money market funds, or cash and they can be redeemed annually at par.
The notes can also be redeemed at any other time for a same-day value, using a mechanism that transfers the investor’s share of each asset in the portfolio, so vertical slice, to a redemption account where, at the investor’s option, they may either be delivered to the investor or sold at market prices.
RISCfp noted that the issuer and investor right to redeem annually at par has been rated (P)Aaa(sf) by Moody’s.
RISCMTP-Notes are transferable assets that use a professional manager of short-duration assets to produce a return comparable to that of a government money market fund (GMMF), following specially-designed investment and portfolio guidelines to avoid losses and target all-in returns equal to or better than that of GMMFs, RISCfp said.
In fact, the notes represent, “the closest thing to owning a short-duration portfolio of Treasuries but without having to choose or manage them yourself,” the company explained, while they keep credit and banking system risk to a minimum as well.
Being redeemable as well, the notes bring flexibility to collateral management strategies, acting like an alternative to an ETF fund investment, but minus market risk and capital charges, RISCfp explained.
The notes could be used as an alternative collateral solution for insurance-linked securities (ILS) and collateralized reinsurance arrangements, providing access to high-quality, short-term investments that can serve as regulatory reinsurance collateral.
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