Wells Fargo bring insurance trust products to the UK and EU

Wells Fargo & Company, the massive financial services group headquartered in the U.S., have announced that they are bringing their successful range of insurance trust products to the UK and EU. To date these insurance trust products have only been available in the U.S. where they are used in place of letters of credit and as a way to provide collateral for various types of insurance and reinsurance transactions, including for insurance-linked securities and catastrophe bonds.

“We are excited to be able to offer UK-based corporate insurers a lower-cost, more efficient alternative to addressing their collateral needs,” said Brian Bartlett, head of Corporate Trust Services. “Insurance trusts provide a number of advantages over LOCs. Customers will enjoy a high level of service when accessing this innovative product.

Wells Fargo say that their UK Insurance Trust product can provide significant cost savings compared to letters of credit, increase availability of credit for those using it and remove the need for an annual renewal process which is required with any letter of credit. Instead of posting a letter of credit, Wells Fargo clients can now place cash into a trust account in the amount of their collateral requirement. It’s efficient as Wells Fargo have already drafted the trust agreement format alongside regulatory bodies and most major re/insurance carriers, meaning a lot of the work required to establish a trust is already complete.

Use of these trust services could make insurance-linked security and cat bond issuance more efficient and cost-effective and it will be interesting to see whether potential issuers look at these as a way to collateralise ILS and cat bond deals. They are also applicable to reinsurance transactions which need to collateralised, captives, surety arrangements and deductible programs.