Vario Global Capital Ltd. has been launched with a goal of becoming the “leading ILS investment vehicle and fund focused on non-catastrophe insurance linked securities” by specialist insurance analysis and modelling firm Vario Partners LLP and reinsurance broker Guy Carpenter.
Today’s announcement is for an agreement in principle to establish a new joint venture, Vario Global Capital Ltd., which will aim to bring diversified portfolios of non-catastrophe risk ILS and insurance or reinsurance linked investments to third-party capital from the capital markets.
By combining Vario Partners’ innovative portfolio modelling technology and analytical expertise, which the firm has been developing since its launch in late 2014, with Guy Carpenter’s strategic advisory and global reinsurance capabilities, the pair will seek to “serve the increasing appetite amongst sophisticated long-term investors to invest in the non-catastrophe exposed insurance risks of property and casualty insurers, delivered through new capital market solutions.”
The venture will act like a capacity facility for property and casualty insurers that want to leverage the efficiency of capital market funding. Vario Partners mission since launch has been to leverage portfolio modelling technology to enable re/insurers non-peak risk and whole portfolios of insurance to be structured in such a way that the capital markets can directly invest in them.
Vario Global Capital will “provide consistent access to capital markets funding for non-catastrophe risk portfolios, through single class, multi-class, and whole account transactions.”
Vario Global Capital will seek to launch its own dedicated non-catastrophe ILS fund in time, to directly participate in reinsurance transactions.
The pair explain why this is attractive to insurers, enabling them to “reduce their overall cost of capital, delivering greater capital efficiency and improved returns on equity.”
James McPherson, one of Vario Partners LLP founding partners and a director of Vario Global Capital, commented on the launch; “Our strength lies in a new, proprietary modelling approach which allows us to structure and analyse non-peak risks, and even whole insurance portfolios, to deliver reliable return projections for investors. The technology opens an entirely new area of insurance risk to institutional investment.”
“We anticipate significant demand, particularly in non-peak risk lines, for the simplified access to the capital markets that Vario Global Capital will deliver,” added Eric Paire, Head of Strategic Advisory, EMEA, Guy Carpenter and director of Vario Global Capital. “This initiative will offer our clients new and exciting solutions, and further extend Guy Carpenter’s leadership in the wider capital advisory and ILS spaces.”
Nick Frankland, CEO of Guy Carpenter’s EMEA Operations and director of Vario Global Capital, said; “We are very excited about this new partnership with such proven professionals, and believe that delivering improved capital efficiency to insurers through the ILS market has the potential to transform the future shape of reinsurance buying for the insurance industry.”
The partnership is compelling. Vario Partners has an experienced and senior team of professionals, all ex-PwC on either the consultancy or actuarial side, with significant experience in helping insurers and reinsurers adapt to the changing market, including how best to leverage alternative capital.
Of course Guy Carpenter, as one of the largest global reinsurance brokers and part of Marsh & McLennan Companies, has both the access to business, the advisory and structuring expertise and the ILS and capital markets strengths to bring risk, capital and experience to the venture.
At this stage it’s not clear exactly what type of risks they will seek to offer ILS and third-party investors access to the returns of, but it will likely span the shorter-tailed ends of specialty lines and casualty risks, we’d imagine.