Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Vesttoo launches Insurance-Linked Program (ILP), makes key capital market hire


Vesttoo has launched a new Insurance-Linked Program (ILP) offering and announced a key hire from the capital markets, as it expands its business to assist investors to pledge high-quality assets as collateral and earn returns from reinsurance and risk transfer business.

vesttoo-logoVesttoo is a technology company that uses proprietary artificial intelligence and machine learning solutions to help companies assess and transfer risks to the capital markets.

The company has been working with industry participants to help them better understand their exposures, in order to structure risk transfer offerings that can tap into the capital markets as a source of reinsurance capacity.

Now, Vesttoo has announced the hire of Robert Schumaker, previously a Managing Director at State Street Bank, and a Vice President at Credit Suisse, who is joining the company as Vice President of Capital Markets and will lead this new initiative.

Schumaker has more than 20 years of experience in capital markets and creating solutions for financial institutions. He worked in prime brokerage trading and sales at Credit Suisse, including securities lending, financing and collateral reinvestment programs, for more than a decade, then led business development of alternative financing solutions at State Street for almost eight years.

He will now lead the development and roll-out of Vesttoo’s Insurance-Linked Program (ILP), through which the company aims to provide investors with long-term, sustainable alpha, generated through a security-based collateral program, as a mechanism for backing risk and sourcing reinsurance-linked returns.

Vesttoo’s new Insurance-Linked Program (ILP) is its first venture into raising capital to support the transactions the company structures and it’s a novel way to help investors make their existing high-quality assets work harder for them, while pledging them as reinsurance collateral.

Vesttoo’s ILP Program will offer asset managers and pension schemes a way to access the returns of insurance and reinsurance like risks, by pledging securities to support short and mid-term Life and P&C alternative risk transfer transactions, the company explained.

Vesttoo believes that investors will benefit from a BB-like spread, with exposure to AA-like uncorrelated risk through the program, using their existing high-quality securities inventory (corporate bonds, government bonds).

So it appears this will see investors putting up some existing bond assets that would be held to support collateral for risk transfer or reinsurance arrangements.

So, working just like an ILS investment, but instead of allocating cash, Vesttoo’s ILP Program is designed to enable use of existing assets to make that ILS investment. While investors will hope to make a better spread from the reinsurance-linked returns on top of the collateral, than they would have from the original low-yielding, but high-security assets on their own.

Vesttoo says it has a “significant global deal pipeline” and is targeting total assets under management for the ILP of US $1 billion USD within 12 months, the company explained.

“We are very excited to have Mr. Schumaker on board, and are looking forward to scaling Vesttoo’s Insurance-Linked Program with the help of his expertise. The ILP program is an integral part of the company’s effort to bridge the funding gap in the reinsurance market, providing sorely needed alternative capital to the reinsurance industry, as well as exceptional return on risk for investors,” Yaniv Bertele, CEO of Vesttoo said.

Vesttoo will use its technologies to analyse data and structure transactions, as well as portfolio optimisation to create robust pools of risk with minimised tails, the company said.

While investors would benefit from a way to access reinsurance linked returns, but using existing bond inventory as collateral, effectively helping their high-quality assets work harder for them, which in the low-yield market environment could prove attractive.

It’s an interesting concept and this type of asset based collateralization has been used in financial markets before, but is less familiar in insurance-linked securities (ILS) where the majority of investment strategies still require direct capital allocation.

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