Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Tullett Prebon insurance-linked note platform completes first issuance


The Tullett Prebon owned Insurance Linked Notes (ILN) platform has successfully completed its first issuance and settlement of catastrophe risk linked notes, in a transaction involving at least one ILS fund manager in LGT ILS Partners.

buy-sell-trade-imageTullett Prebon, the electronic and voice interdealer broker and part of the TP ICAP group, announced the launch of a trading and issuance platform for what it termed Insurance Linked Notes (ILN’s) in September of 2018.

Initially featuring catastrophe industry-loss ILN instruments, the platform offers a fully-securitised and collateralised end-product to give the risk cedant access to a wide range of capital market counterparties and the investors the chance to benefit from secondary liquidity options.

Having onboarded its first group of clients to the ILN platform, Tullett Prebon has now completed its first transaction, an industry loss based likely retro reinsurance deal, with PCS acting as the reporting agent.

LGT ILS Partners, the specialist ILS fund management unit of the global asset manager LGT, was one of the parties involved in the first ILN deal.

It’s likely the transaction will either be an ILW between ILS funds (with LGT one party), or a retrocessional reinsurance arrangement for a reinsurer.

The ILN platform from Tullet Prebon offers an efficient way for cedants to access the capital markets and for investors to allocate to securitised insurance and reinsurance risk.

Tullett Prebon’s ILS desk, which is prolific in the trading of secondary catastrophe bond positions, will now host regular auctions to secure new transactions for fully onboarded trading counterparties, the company said.

Steve Emmerson, Head of ILS at Tullett Prebon, commented on the completion of the first deal, “The ILN platform from Tullett Prebon introduces a unique combination of tools under one roof, including real time ILN risk analytics, the ILN issuance vehicle, our voice assisted trading platform, and ILN market data. This enables all approved counterparties to design, analyse and trade in catastrophe risk.

“We can issue ILNs for as low as USD5m in size, which tends to be impractical for industry loss based Cat Bonds due to the issuance costs involved. And unlike ILWs, these are tradable instruments and provide for anonymity between parties.

“We have worked hard for some time now to bring this to fruition, alongside many partners and service providers, including our partners at Artex Risk Solutions (Bermuda) Ltd, Analyze Re as well as our clients.”

Rob Eastham, Executive Chairman of Artex in Bermuda, added, “We are delighted that Artex is one of Tullett Prebon’s key partners in the introduction of this transformational product, which provides both market liquidity and a cost-efficient trading solution. As Steve mentioned, the design and launch were a significant task which we believe will greatly benefit the ILS industry, with the end goal of becoming the platform of choice for future innovation in index linked trading.”

Adrian Bentley, Managing Director of Analyze Re, also said, “We are excited to be working with Tullett Prebon on this innovative product and our aim is to provide the most flexible and transparent picture of risk for each potential ILN prior to trading. All registered users will have access to our real-time analytics which will enable protection buyers and sellers to instantly evaluate the risk based on factors including geography, type of catastrophe, and trigger level.”

Specialist insurance-linked securities (ILS) fund managers LGT and Schroders are already fully onboarded on the ILS platform and commented on the potential for the system.

“We are constantly exploring new ways of accessing reinsurance transactions on behalf of our institutional investor base,” explained Christian Bruns, Partner and Portfolio Manager at LGT ILS Partners.

“We were structuring the first cat bond light deals back in 2012 and launched Lumen Re as our rated balance sheet in 2017. Tullett Prebon’s ILN platform is now taking ILS innovation one step further an represents a very efficient new tool to both protection buyers and sellers. We are excited being the first ILN clients to execute a deal on this new platform.”

Daniel Ineichen, Head of Fund Management, Schroder Secquaero, commented, “We congratulate the team at Tullett Prebon for the successful launch of its ILN platform. We believe that this innovative solution has the potential to further accelerate the growth of the ILS market. The degree of transparency provided in combination with the flexibility to buy or hedge risks, offers an effective and cost efficient way to enhance the management of ILS portfolios.”

Tom Johansmeyer, Head of PCS, a Verisk business, also said, “We’ve been champions of the tradable risk concept for years and have long believed it’s been a matter of “when” rather than “if”. With the successful completion of the first ILN, it’s clear that the global reinsurance market has taken a step into a new era in which liquidity, speed of execution, and regular access to reliable loss reporting will enable cedents and markets to optimize their capital and manage risk more effectively. We’re pleased to be the reporting agent for the first ILN transaction and look forward to continuing to support this market.”

The new ILN Platform from Tullett Prebon could have broad appeal, being available to insurance and reinsurance companies, ILS funds, corporates and other potential protection buyers.

Currently industry loss based only, it’s likely that the platform will expand to offer indemnity and parametric forms of protection, we’d imagine, which could broaden its traction considerably.

Offering access to diversified sources of risk and reinsurance capital, the ILN platform not only facilitates risk transfer but also creates the most widely sort after form of ILS investment, a note with secondary liquidity.

Of course liquidity is not always assured, but the fact the ILN has been designed with liquidity in mind suggests that if the platform can gain sufficient traction it will see its notes traded as the volume of issuance grows.

It’s encouraging to see the first deal completed for this initiative and we hope to see many more.

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