Swiss based ILS investment firm Solidum Partners AG are one of the many participants in the California Earthquake Authority reinsurance program for 2012. They participated as a collateralized reinsurance vehicle to the tune of $52.5m in the program through a special purpose vehicle called Solidum Re Eiger IC Limited, fronting for their ILS investment funds and a partnering co-investor and transforming the risk into a private cat bond.
This is not the first time Solidum Partners has issued private catastrophe bond notes with the aim of adding capacity, diversification and opportunity to their managed insurance-linked security and cat bond fund. Earlier this year we wrote about their Pollux, Dom and Jungfrau transactions which were undertaken through Guernsey based SPV’s and provided new and extremely attractive investment opportunities for Solidum’s clients through their investment fund.
This Eiger 2011 cat bond deal saw Solidum convert the reinsurance they underwrote for the CEA into cat bond notes which were then issued to their investment funds and a co-investor on the deal who we understand took a large portion of the Eiger 2011 cat bond notes themselves.
We spoke with Karsten Bromann, Managing Partner & Chief Risk Officer at Solidum Partners, who told us that the transaction was structured as a private cat bond, with transferable features. Solidum Re acted as a transformer to structure their participation in the CEA’s reinsurance program into a format that allowed their funds and co-investor to invest in the participation.
Despite the transferability of the notes, Karsten Bromann commented; “Solidum is pleased that we could participate on the CEA’s programme on behalf of our investment funds and our co-investor. In order to allow all involved parties to invest, the participation had to be transformed into a ‘private cat bond’ structure with principal transferability, ISIN number and intended listing. However, all investors involved intend to hold the notes over their lifetime. Hence in any practical aspect, and contrary to our earlier and potential future transformations for which we envision secondary trading, this transaction remains a normal collateralised and transformed reinsurance transaction.”
Solidum are leading the way with their use of the private cat bond to open door’s to new opportunities both for themselves, through their ILS funds, and for specific clients they partner with on transactions. We expect this trend for private transformation of reinsurance to cat bond notes to grow and there is a good chance we could see other types of companies, such as retrocession underwriters, looking to private cat bond issuance to help their diversification and portfolio optimisation in the future.