You’d be forgiven for thinking that the insurance-linked securities market was strictly limited to Bermuda, the Cayman Islands and occasionally Dublin, Ireland. Looking through our Deal Directory of transactions those are the main domiciles which crop up as the home of ILS and catastrophe bond issuers. However there is activity in another offshore domicile, Guernsey, thanks to a company called Robus.
Robus is an independent insurance management, fiduciary and financial advisory group who provide a range of services to insurance-linked securities (ILS) fund managers, captive insurers, open market insurers and reinsurers, intermediaries and other entities. We reached out to them to understand a little more about the activity they undertake in the ILS sector.
Their Guernsey office specialises in transacting deals, largely through special purpose vehicles acting as transformers, for ILS funds. This will be ILS funds seeking to issue private ILS transactions to build capacity for their investors, as we’ve seen happen on a number of occasions in the last few years. It could also be those ILS managers who write collateralised reinsurance and then transform it into insurance-linked securities for their funds, this happens much more frequently than many may think.
Robus are seeking to grow this area of their business and have taken on Justin Wallen as of 1st March, a former director of the White Rock PCC (protected cell company) and ICC (incorporated cell company) facilities, to become Managing Director of Hexagon Insurance PCC Limited and help them grow this strategy. Wallen has worked with four ILS funds previously helping them to conduct fully collateralised reinsurance transactions through protected and incorporated cells.
Robus seek to offer ILS funds the ability to set up protected cells as a transformer facility within Hexagon PCC as their already established and licensed PCC vehicle in Guernsey. Technically they could also offer facilities for cat bond issuance through their protected or incorporated cell structures to traditional sponsors such as insurers or directly to corporates in the future, although this isn’t an area of focus at the moment. In addition to facilitating fully collateralised catastrophe reinsurance contracts, Robus also focuses on transactions such as a value in force life securitisation trade or mortality swaps, both of which would be using ISDA documentation and the protected cell in question would tend to be owned by an ILS Fund.
Robus use their Hexagon Insurance Protected Cell Company for ILS funds seeking these kinds of facilities. They can also set up fully segregated PCC facilities for each fund if they choose, with two major ILS funds already choosing to use dedicated PCC facilities according to Robus. Robus say that they can also set up incorporated cell companies should ILS funds prefer that approach.
We spoke with Justin Wallen of Robus to better understand the advantages of this approach and Robus’ thoughts on how this less publicised area of the insurance-linked securities market could develop.
We asked Justin what he felt their key selling point for this service was?
“Our primary focus with concluding ILS deals is the speed of turnaround for each transaction, managing the regulatory, reinsurance contract documentation and trust agreement wording processes from Guernsey in order to make sure that we hit the contract inception dates.”
“Our key message is that we can facilitate private trades in the form of fully collateralised catastrophe reinsurance contracts via a cell vehicle usually invested into by an ILS Fund. We are expecting to conduct 10 private reinsurance contracts for every 1 swap contract based upon current market activity.”
“All of these trades can be invested into by ILS Funds or indeed direct investment from pension funds wanting to invest directly into the ILS space. In practice though, there would be a transaction manager (usually the Investment Manager of an ILS fund) to assist the investing pension fund in understanding the risk exposures if or when they don’t have sufficiently ILS knowledge in-house. We have also seen pension funds taking a quota share reinsurance of a catastrophe reinsurance deal to participate in these risks via their own cell vehicle where they prefer to have a stand-alone cell rather than a co-investment in a particular trade.”
“We are certainly happy to facilitate such investment for “other” investors but as these risks are for consenting adults only then they need to have fully considered and understood the risks of investment which is why to date we have seen such investors partnering up with an ILS investment specialist.”
“As a niche operation with fewer clients than the larger operations we are competing with, our mantra is ‘service, service, service’ in terms of same day response times and dedicating ourselves to ensuring that every transaction is completed in a manner satisfactory to all parties in the process, from the investing ILS Fund, to the Reinsured to the Reinsurance Broker. “
“We also make sure that our financial reporting for each cell vehicle is of a high quality and within any deadlines set by the investing fund to receive their information.”
As part of their service offering, Robus encourages Wallen to visit clients in person on a regular basis both to present financial information regarding their transactions but also to discuss any aspect of their servicing and to ensure that each ILS fund is fully satisfied with every aspect of their product.
We then asked Justin how Robus price these types of services?
“Of course as a wholly independent operation, Robus can also price very competitively for our services. Our Hexagon PCC deal fees are flat irrespective of deal size and we can price even more competitively where multiple cells are required for a number of transactions.”
“We also offer a protected cell fee fully inclusive of any audit and regulatory fees to keep things simple for our clients, where Robus take on the risk of those increasing over time. There are no run-off costs with each protected cell having an up front deal fee. This means that if a cell is unfortunate enough to suffer a claim then there won’t be the double whammy of an ongoing annual management fee whilst that claim is being settled and the cell is run-off.”
Robus also offer cell company services for sidecars as well as their collateralised reinsurance and ILS transformer services. It’s great to see Guernsey getting in on the ILS market with a more concerted effort from Robus. Guernsey has been mooted as a domicile where public ILS and cat bond issuance could take place in the future and these service offerings from Robus will certainly help to promote the island as a potential location for the ILS market to grow in.