HAMILTON, Bermuda, Aug. 19, 2020 /PRNewswire/ -- Marking a milestone in asset-backed securities, ILS Capital Management, a Bermuda-based investment firm specializing in insurance and reinsurance investments, has completed a $57 million offering of 5.50% asset-backed notes, a securitization of the residual value of trust accounts supporting reinsurance contracts (known in the industry as trapped capital).
The offering was issued by ILS Capital's newly formed subsidiary Parliament Street Finance. The transaction was marketed by BNP Paribas' Debt Private Placements and Asset-Backed Securities syndicate desks. It was placed with investors from global and regional asset managers and insurance companies.
This transaction represents the first-ever securitization of trapped capital, investor funds that are temporarily held by counterparties and thus unavailable for reinvestment until insurance claims are settled. It includes 51 contracts potentially impacted by 18 catastrophe events spanning the past three years and represents 70% of the total trapped capital across ILS Capital funds as of January 1, 2020. More broadly, this transaction paves the way for similar reinsurance securitizations benefitting investors, with the potential to unlock a substantial portion of the industry's $15 billion in trapped capital.
Tom Libassi, Co-Founder and Managing Partner of ILS Capital, said, "We are delighted to have completed the very first transaction securitizing so-called trapped capital, solving an issue that has vexed our industry since it came to light following the losses related to the natural disasters of 2017 and 2018. By unlocking capital that would otherwise be kept from being redeployed, this transaction gets money back into the hands of our investors more quickly, making it available for new investments while still providing our investors with potential upside."
Founded in 2011 by insurance industry veteran Don Kramer, ILS Capital has demonstrated that it is among the most innovative firms working in the insurance and reinsurance sectors. Its novel approaches, including applying a Wall Street approach to managing insurance and reinsurance risk, seeking to address the needs of both traditional reinsurance buyers and capital market investors, and seeking to package risk in new, investor-friendly ways, drive not only its own continued growth but also the significant expansion of the overall market.
In addition to the first-of-its-kind transaction announced today, ILS Capital's innovation is evidenced by other recent accomplishments:
Earlier this year, ILS Capital led the market when its reinsurance company Prospero Re was given an "A" rating by Kroll Bond Rating Agency (KBRA), making it the first Bermuda-based collateralized reinsurance company to be rated.
In 2017, ILS Capital took a substantial ownership stake in Producers National Corporation (PNC), a Chicago-based insurance company focused on non-standard auto insurance. Since ILS Capital's investment in PNC, the company has expanded into the commercial auto market and plans to launch a homeowners' program in the near future.
In structuring the debt transaction, ILS Capital was advised by BNP Paribas, which served as Sole Structuring Advisor and Sole Placement Agent, and Goodwin Procter LLP and ASW Law Limited served as its legal advisors. Mayer Brown provided legal counsel to the investors in the transaction.
ABOUT ILS CAPITAL MANAGEMENT ILS Capital Management Ltd. is an employee-owned, SEC-registered investment advisor with $320 million in assets under advisement, 13 employees, and four offices worldwide. ILS Capital's subsidiary Prospero Re Ltd. was launched in 2013 as a Class 3A Bermuda reinsurance company. ILS Capital aims to generate returns by investing in insurance and reinsurance contracts across geographic regions and lines of business including property, marine, energy, crop, aviation, aerospace, and weather. The firm believes that thoughtful contract selection and tactical sector allocation, coupled with portfolio management analytics, enable it to seek to capture yield and generate attractive risk-adjusted returns.