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White Mountains uses ILW’s to protect Sirius for China Minsheng


White Mountains has purchased industry loss warranties (ILW’s) as a way to protect the balance sheet of its Sirius International Insurance Group, Ltd. unit, as it awaits the completion of Sirius’ sale to Chinese investment group China Minsheng Investment Corp., Ltd.

Bermuda-domiciled insurance, reinsurance and financial services group White Mountains agreed the sale of Sirius to the Chinese investment holding company earlier this year, for a price of around $2.235 billion, as China Minsheng Investment (CMI) looked to acquire an insurance and reinsurance platform.

In its latest quarterly results released today White Mountains revealed that it has purchased protection for Sirius, to mitigate the impact to its balance sheet of any major catastrophe type events. In advance of the completion of the sale, it’s possible that there is a clause in the acquisition agreement stating Sirius must have a certain level of capital adequacy for the deal to go through.

CMI likely wants to be ensured that the insurance and reinsurance business it is buying is as strong when the deal completes as it was when it performed due-diligence and decided to acquire Sirius.

So White Mountains has turned to the industry-loss warranty (ILW) market, buying protection against major industry loss events that could hit Sirius.

The results explain that White Mountains achieved this through “ILW covers purchased to mitigate the potential impact of major events on Sirius Group’s balance sheet pending the close of the sale to CMI.”

The cost of the ILW purchases knocked a few points off the Sirius combined ratio, which White Mountains reported as 3 points for the third-quarter and 1 point across the first nine months of 2015.

The CMI transaction is expected to close in the first-quarter of 2016. By protecting Sirius with this industry loss based ILW cover, White Mountains can be more certain in the value of the business it is selling, providing greater certainty for CMI as well.

It’s an effective use-case for putting ILW’s, the industry loss trigger and likely third-party capital (given many ILW’s are capital market and ILS fund-backed) to work, protecting the balance sheet more broadly against the kind of loss events that would hit the majority of companies operating in insurance and reinsurance.

Also read:

White Mountains sells Sirius to China Minsheng Investment Corp.

Sirius third-party capital activities to transfer to China Minsheng.

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