Société Générale Corporate & Investment Banking, a division of the French investment bank, has announced the launch of a contingent capital facility for insurers and reinsurers.
The new facility, known as Event Driven Guaranteed Equity (EDGETM), provides yet another way for the insurance and reinsurance industry to access the capital markets for additional cover. The contingent capital facility has been designed to address re/insurers capital requirements as well as providing alternative risk transfer.
EDGE provides a source of multi-year protection and will subscribe to shares issued by companies if a contractually-defined (covered) event occurs. Société Générale say that this will provide a complementary and alternative source of cover to existing risk transfer mechanisms. They say it offers a fast set up, lower basis risk, flexibility and there is no equity dilution until an event is triggered. That could be very attractive to certain insurers right now.
EDGE has been recognised by an unnamed major rating agency as a structure which reduces capital requirements up front and so has a beneficial rating impact.
These types of facilities are likely to become more common as we enter a rating and regulatory world which demands more robust capital requirements and risk transfer.
Read our coverage of a new contingent capital facility from French reinsurer Scor here.