Turkish quake ILN issued at $7m by Tullett Prebon platform

The Tullett Prebon operated Insurance Linked Notes (ILN) platform has successfully completed its second issuance and settlement of catastrophe risk linked notes, with a $7 million Turkish earthquake exposed industry loss deal transacted with capital market investors.

Electronic and voice interdealer broker and part of the TP ICAP group Tullett Prebon revealed a trading and issuance platform for what it terms Insurance Linked Notes (ILN’s) back in September 2018.

The first transaction from the platform came to market in the third-quarter of 2019, as a $10 million industry loss warranty (ILW) trade between an insurance-linked securities (ILS) fund and a reinsurance counterparty was transacted and securitised, with one party involved reported to have been LGT ILS Partners, the specialist ILS fund management unit of global asset manager and private bank LGT.

Now, a second ILN transaction has been completed and it’s a less typical peril that has been transacted for a reinsurance protection buyer and securitized to allow a capital market investor, likely an ILS fund, to invest in it and to give options for secondary liquidity.

We’re told that the deal features an industry loss based transaction that transfers the risk associated with $7 million of Turkish earthquake exposure and securitizes it into insurance-linked note form.

We understand this is the first “transformer series” transaction issued through the platform, as it securitised a traditional reinsurance contract and transformed it into securities (insurance-linked notes).

Turkish earthquake is the underlying peril and the arrangement will provide the cedent with $7 million of aggregate industry loss based protection, but structured to provide linear coverage which is seen as an innovative use of the industry loss trigger.

We also understand that the deal featured a cedent that is completely new to the insurance-linked securities (ILS) market.

We’re told the execution was highly cost-effective and efficient, resulting in fully tradable ILN Programme notes.

Tullett Prebon’s deal team was led by Steve Emmerson, while Artex Risk Solutions provided insurance management services and specific expertise in risk transformation.

Tullett Prebon has a dedicated insurance-linked securities (ILS) vehicle to support deal-flow from its ILN platform, having registered a Bermuda based special purpose vehicle, a segregated accounts structure, named ILN SAC Ltd. which is managed by Artex.

Two tranches of notes have been issued by ILN SAC Ltd., both of which were admitted for listing on the Bermuda Stock Exchange (BSX) as insurance related securities.

ILN SAC Ltd. has issued a $6.699 million tranche of Class PS notes Series 1 Transformer and a $301,000 tranche of Class PB notes, which correspond to the buyer and seller protection notes that the ILN platform produces for each of its transactions (PS being seller notes notes, PB being buyer).

Both tranches, so the full $7 million of notes, are due for maturity on February 10th 2021, suggesting the underlying industry loss based reinsurance or retrocessional protection is for roughly one year.

This transaction, in bringing a new sponsor to the ILS market, demonstrates the effectiveness of the ILN platform and the way it can bring small or large issuances of tradable ILS notes to market, helping cedents access capital market investors.

We’ve added this latest transaction from Tullett Prebon’s platform to our Deal Directory as ILN SAC Ltd. (ILN-TKY-Q-1).