August 19, 2020
ILS Capital Completes the First-Ever Securitization of Trapped Capital, Solving Reinsurance Industry Problem
Hamilton, Bermuda – 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.
Transaction Returns Trapped Reinsurance Capital to Investors While Maintaining Upside Potential
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.”