Vesttoo, the insurtech that uses proprietary artificial intelligence and machine learning to help companies assess and transfer risks to the capital markets, has partnered with non-catastrophe specialty P&C reinsurance firm Corinthian Re, to launch a new non-cat P&C investment opportunity called VESCOR.
The strategy behind VESCOR is to deliver investment grade debt structures that sit atop non-catastrophe property and casualty insurance liabilities, enabling investors to access the returns of a diversifying segment of the global insurance and reinsurance market more easily.
Investors will be offered securitized notes that are expected to be rated by a leading agency and will be linked to the underlying returns of subject non-catastrophe focused insurance or reinsurance business.
The securitized notes will enable investors to access the risk and returns of a group of insurance policies that have been underwritten by hand-selected, diversified insurance and reinsurance companies, the parties involved announced today.
The risk modeling and performance will be managed by Vesttoo’s advanced artificial intelligence (AI), while Vesttoo is also planning to carry the equity layer of the securities through its ILP fund (Insurance Linked Program).
Calling it “the world’s first non-catastrophe insurance investment-grade rated feeder fund” Vesttoo and Corinthian Re expect to offer institutional investors rated notes securitizing numerous underlying P&C reinsurance transactions.
To begin, the first securitized note offered to investors will cover $250 million in Gross Written Premiums (GWP), the companies said today.
The target for this strategy is much larger though, as the pair aim to cover $2 billion GWP in subsequently issued notes.
“This is a first-of-its-kind partnership – offering investors significant investment-grade returns together with uncorrelated diversification,” Yaniv Bertele, CEO and Co-Founder of Vesttoo explained.
“We are leveraging Corinthian’s vast experience and reputation in the reinsurance and alternative risk transfer markets and combining it with Vesttoo’s tech-enabled modeling and financial engineering. It’s a unique and innovative opportunity for investors to seize attractive risk-adjusted returns.”
“We look forward to scaling up and expanding our unique underwriting product that has a proven history of providing an efficient path for investors seeking attractive reinsurance opportunities,” added Christopher Collins, Managing Director of Corinthian. “We’re excited to have our history and experience in utilizing risk mitigation techniques to build a diverse portfolio for non-CAT reinsurance, to be validated and enhanced by Vesttoo’s impressive AI stochastic projection and innovative risk modeling. We are proud to be a part of VESCOR in leading the way for institutional investors to participate in this highly desirable investment sector.”
In terms of the details of how this is being structured, Corinthian Re will be responsible for the identification, structuring and management of a diversified underwriting portfolio, with the support of Vesttoo’s AI-powered technology, modeling and financial engineering.
In addition, the pair said that several banks will be involved in leading the transaction placements.
Each of the tech-enabled transactions will feature an Aggregate Stop Loss (ASL) arrangement on top of a Quota Share (QS) reinsurance layer, which they say will maximise ratings and also protect investor returns.
It’s claimed that this will be the first-ever insurance-linked investment instrument that features both quota share and aggregate stop loss layers, which the two parties involves say is “essentially reinventing the traditional sidecar structure.”
Vesttoo will work closely with the rating agency using its technology to ensure that the level of collateralization and probability of exhaustion of the subject portfolio of risks are within the rating’s tolerance, while each note will also be created to meet specific rating requirements associated with insurance industry standards, the companies further explained.
It’s a unique and interesting proposition and one that could be extremely attractive to investors seeking relatively uncorrelated returns from the insurance and reinsurance market, especially those seeking a point of differentiation.
The rated nature of the securitized notes will also be attractive and could draw in different types of investors as well, while the use of technology to monitor the transaction, its cash flow and collateralization needs, will also provide an additional level of transparency and comfort.