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Vesttoo targets $109m investment-grade Vescor 2023-1 non-cat ILS note issuance


Vesttoo, the insurance-linked securities (ILS) focused insurtech, has an investment grade ILS deal in the market, Artemis has learned, with circa $109 million of ‘BBB’ rated Vesttoo Bermudian Bay Ltd. (Vescor Series 2023-1) notes on offer that are linked to the performance of a risk pool featuring non-cat largely casualty risks.

vesttoo-logoThese are the first set of notes seen from the Vescor initiative that was launched by Vesttoo alongside non-catastrophe and collateralized specialty P&C reinsurance firm Corinthian Re in 2022.

The Vescor initiative aimed to deliver investment grade debt structures that sit atop non-catastrophe property and casualty insurance liabilities, allowing investors to access the returns of a diversifying segment of the global insurance and reinsurance market more easily.

The offering is unique in the market for that reason, with casualty and other non-catastrophe linked exposures extremely rare in the market, in a securitized cat bond-like note form such as this.

This first Vescor issuance makes that a reality and puts these Vescor 2023-1 notes in rarefied air, alongside just a handful of investment grade ILS’ that came before.

The investment grade rating is seldom seen in ILS or catastrophe bond markets, which alongside this Vescor 2023-1 issuance having a non-catastrophe and casualty risk focus, makes this deal a unique offering.

In the past, investment grade ratings have been achieved by ILS and catastrophe bonds, such as Nephila Capital’s innovative Gamut Re transaction back in 2007, which leveraged collateralised debt obligation (CDO) technology to bring a diversified pool of catastrophe risks to investors.

After that we saw the mid-2008 issue Vega Capital Ltd. (Series 2008-1) and a novel equity and bond type catastrophe securitisation by Hannover Re named Globe Re Ltd. from the same year.

Then, in 2015, Standard & Poor’s gave an investment grade rating to the Kizuna Re II 2015-1 cat bond as the remote nature of the Japanese earthquake risk being ceded earned it a BBB-.

After that, ILS fund manager Leadenhall Capital Partners achieved an investment grade rating for two private catastrophe bonds in 2016 and then most recently the $100 million Stratosphere Re Ltd. (Series 2020-1) cat bond covering tail risks on Nephila Capital’s fronted business achieved a ‘BBB’ rating in 2020.

An investment grade rating can help to unlock new sources of investor capital, with some of the world’s largest investors only allocating to securities that meet that assessment level.

So, Vesttoo’s first Vescor non-cat ILS rated notes series is a potentially important milestone for the non-cat side of the ILS market, as the first casualty focused ILS to receive such a preliminary rating assessment.

On the transaction itself, we understand from sources that these Vescor Series 2023-1 notes are being issued using a new Bermuda segregated accounts company named Vesttoo Bermudian Bay Ltd.

The offering is for an estimated $109 million of notes, we understand, with these issued privately as Section 4(a)(2) notes, but with certain 144A features to allow them to be traded in the secondary market.

The notes will have a 4 year term, but we’re told can be called after 15 months of issue.

They are linked to programmes of insurance business that are largely casualty and non-catastrophe in nature, of which we’re told over 85% will be linked to US auto liability business, while workers’ compensation risks, general liability and a small amount of commercial multi-peril also feature in the subject business.

This underlying insurance business is sourced via collateralized reinsurance company Corinthian Re and it’s understood the risks are seasoned, having been underwritten over the last two years.

The portfolio of insurance risk underlying these proposed notes issuance is heavily concentrated to insurtech Root Insurance, which makes up more than 50% of the projected written premiums subject to the arrangement.

That risk comes via a quota share reinsurance arrangement between Root and Osprey Re, which is a Corinthian Re reinsurance company.

The claims ratio on the underlying business would have to reach above 98% for these Vescor 2023-1 notes to attach, sources said, making them very remote in terms of risk and having an extremely low expected loss and attachment probability (less than one-thousandth of a percent).

Vesttoo is said to have used its own technology to model the risks, while Milliman is acting as a third-party that verifies the risk calculation.

The Vescor 2023-1 notes are being offered with a proposed spread of 4% and it’s said with the underlying return of treasuries the expected yield to maturity is 9%.

These notes are senior in the risk tower and with their very low attachment probability expected to receive a ‘BBB’ rating from AM Best, we understand.

That’s all the details we have sourced for now, but it does appear these notes are akin to a casualty catastrophe bond and as such a true rarity in the market, while also being a signal of the growing acceptance of and the potential for future expansion of the non-cat ILS space.

Given the diversifying investment opportunity these Vescor 2023-1 non-cat ILS notes will provide, as well as their investment grade rating, it will be interesting to hear how well-received they are by ILS fund managers and investors.

We’ve added this new Vesttoo non-cat ILS transaction as Vesttoo Bermudian Bay Ltd. (Vescor Series 2023-1) to our extensive Artemis Deal Directory.

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