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In July 2015, AIG sponsored $300 million of mortgage insurance-linked securities by Bellemeade Re. The ground- breaking offering, which combines diverse structural features from both the catastrophe bond and RMBS markets, enabled AIG to access the capital markets for up to ten years of collateralized reinsurance protection for a portfolio of mortgage loans it insures. Unlike a traditional catastrophe bond that provides coverage for natural catastrophes, investors in Bellemeade Re are exposed to the risk of defaults on a pool of residential mortgage loans insured by AIG and its subsidiaries. As both a cat bond and a synthetic mortgage-backed security, this unique 144A offering required first-of-its-kind structures and disclosure and was designed to permit the release of PMIERs capital.
SELECTED ILS FUND MANAGERS (AUM)
III. Insurance-Linked Securities
Canadian and U.K. extreme mortality coverage through Vita Capital VI; and Aetna placed $200 million medical benefit ratio coverage through their sixth Vitality Re transaction. As the ILS market has grown in size and sophistication, discussions about transferring non- traditional risks to the capital markets has accelerated. We would not be surprised to see a continued deepening of the market to other risk categories in 2016.
Reinsurance side-cars continued to be a consistent component of the ILS market, with many of the existing structures renewed for the 2015/2016 underwriting year. In 2015, Munich Re renewed its 144A Eden Re II reinsurance sidecar at $360 million; Aspen renewed Silverton Re for $125 million; PartnerRe renewed Lorenz Re; and Argo renewed Harambee Re, among other transactions. Soft market conditions did have an impact on sidecar transactions, as the shareholders’ equity of Everest’s Mt. Logan Re declined in the third quarter of 2015 and Markel did not renew its New Point sidecar for 2016.
Interestingly in 2015, the same pricing pressures transforming the reinsurance industry also had an impact on ILS funds, many of which have achieved a scale consistent with offshore property catastrophe reinsurers. Set forth below is a list of selected ILS fund managers and offshore reinsurers, together with their assets under management5 and market cap, respectively. Alternative capital has become mainstream and is no longer “alternative” to traditional reinsurance.
SELECTED REINSURERS (MARKET CAP)
Nephila Credit Suisse LGT
Fermat
Stone Ridge Securis Twelve Capital Elementum Leadenhall
^ Purchase price paid by Fosun
$9.5 billion $6.5+ billion $5.2 billion $4.7 billion $3.7 billion $3.3 billion $3.1 billion $2.0-2.5 billion $2.0 billion
XL Group
Arch
PartnerRe
SCOR
Axis
Amlin
Endurance
Validus
Ironshore
5 AUM amounts are those reported by www.artemis.bm.
$12.0 billion
$8.1 billion
$6.7 billion
$6.4 billion
$5.5 billion
£3.4 billion*
$4.4 billion
$3.9 billion
$1.8 billion^
* Under offer
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review