Transaction Types

The targeted mix of transaction types is to use 70% or more property catastrophe reinsurance contracts (UNL). Other transaction types will be considered to enhance the return and risk profile.

  • Property catastrophe reinsurance contracts
    • Usually on an excess of loss basis
    • Contracts written on a fully collateralised basis
    • Notional value of traditional reinsurance is $250+ billion. This allows the Manager to develop a portfolio diversified by geographic region, peril, event order and counter-party
    • Target “peak” zones where pricing is more attractive, but monitor other zones as well
    • Focus will generally be on higher expected loss/higher rate-on-line (ROL) layers
  • Other transaction types used by the Manager
    • Catastrophe bonds - Debt instruments which are exposed to loss of principal and interest due to property catastrophe claims arising from natural perils
      • Similar to traditional property catastrophe reinsurance contracts offering excess of loss protection but in different legal form
      • Typically issued for more risk-remote layers of protection (lower expected loss/lower ROL)
      • Variety of triggers can be used, including indemnity, industry index loss, modeled loss or parametric triggers
      • Will selectively invest in catastrophe bonds at issuance and in the secondary market
    • Industry loss warranties (ILW) - Contracts tied to industry-wide losses
      • Contracts can be written in specific geographic regions and for specific perils
      • May be used to efficiently hedge some of the portfolio’s risk
    • Sidecar debt and equity - Debt or equity instruments of special purpose vehicles which assume a pro rata (quota share) percentage of premiums and claims on a portfolio of underlying (re)insurance risks
      • Offers opportunity to target portions of the sidecar capital structure that best fit the portfolio’s risk and reward profile
      • May enhance overall portfolio leverage
    • Specialty reinsurance contracts - Contracts covering claims from exposure to low frequency but high severity risks including risks other than those from natural perils, or which cause losses other than property losses
      • Focus on higher expected loss/higher ROL layers with short-tail
      • May enhance diversification within the reinsurance portfolio