Interest from small and mid-sized cedants in the use of ILS as a risk transfer mechanism is growing fast and several platforms are now able to facilitate transactions around the $10 million mark, as Robert Eastham, managing director of Kane Bermuda, tells Intelligent ILS.
As interest in insurance-linked securities (ILS) as a risk transfer tool continues to grow, a number of platforms have been formed designed to make it cost-efficient for smaller cedants to leverage this market.
Kane Bermuda—a subsidiary of insurance manager Kane—has closed its seventh deal via its recently established private catastrophe bond platform, bringing the total volume of issuance from the platform to more than $135 million of outstanding notes.
Launched in August 2013 as a result of investor demand, the platform, which allows transactions to be listed on the Bermuda Stock Exchange (BSX), operates as an extension of Kane SAC’s current offerings.
Robert Eastham, the company’s managing director, explains: “The platform was developed as an extension of the collateralised insurance transactions we had been facilitating through Kane SAC Limited since 2007. The underlying structure of transactions on the platform remain very similar to a typical transformer transaction, but by expanding disclosures and amending the note format we were able to meet BSX listing requirements and formally register the platform on the exchange.”
In a market that has grown exponentially over the last 12 months, innovation and firsts for the market have been occurring on a regular basis. With regard to Kane’s platform, Eastham says, much of this is being driven by investors.
“Unlike cat bonds, where the sponsors are the insurers, these first transactions have been investor-driven. We launched the platform as a result of investor interest and specifically to meet the needs of certain categories of investors who for various reasons required notes to be issued for smaller private transactions both in a tradable format and listed on a public exchange.
With seven bonds issued by Kane’s platform, the bonds vary in size—the smallest is around $7.3 million.
Bermuda is best
Being based in Bermuda—a leading ILS jurisdiction—enabled Kane to launch the platform amid a seasoned and well established market.
“I believe that being based in Bermuda does offer us a number of advantages,” says Eastham.
“Over many years, Bermuda has clearly evolved into a major international reinsurance centre which has now also become a preferred centre for ILS activity.
“As an example, Kane Bermuda, one player of many in the Bermuda market, has in excess of 50 active segregated accounts currently facilitating ILS transactions, some of which are on a multi-party basis. Furthermore, Bermuda has recently seen significant success in the cat bond market and based upon the level of current activity appears also to have become a domicile of choice for this market segment.”
Regulatory requirements have also played an important role in driving forward the creation of the platform.
“This activity is being conducted within a pragmatic regulatory environment which has developed appropriate protocols and rules to enable fully collateralised contracts to be transacted in a manner which I believe is both more efficient and cost-beneficial than that provided by other domiciles.”
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Source: Intelligent Insurer