Bedell Cristin in Guernsey has recently advised on a groundbreaking CAT bond transfer.
Partner Mark Helyar and his team advised Swiss ILS managers Solidum Partners AG on a private transformer of catastrophe risks into $12.4m of securities in three separate deals through a Guernsey based incorporated cell structure, Solidum Re.
Advocate Mark Helyar said: "Those in the insurance industry in Guernsey will know that I have long espoused the opportunity for Guernsey to benefit from insurance and reinsurance transformer transactions of this sort given that we have the right cocktail of specialist professional disciplines and a respected regulatory framework operating within the European time zone.
"It is fantastic for Bedell and for Guernsey to have advised on the development of an effectively new product with our client Solidum Partners, particularly at a time when there is likely to be considerable global demand for investment in reinsurance markets.
"The firm's acknowledged international expertise** in the specialist use of PCC and ICC structures for investment and insurance purposes has been of particular use in this series of transactions by ring-fencing risk whilst maintaining repeat transaction costs as low as possible for both our client and investors."
After a string of natural disasters in the US and Japan in recent months, the catastrophe reinsurance market is touted by industry experts to harden considerably and many investors are considering the benefit of returns from investment in provision of capital for reinsurance programmes which will command higher premiums over coming years.
This latest series of transactions have recently been described by Trade journal Trading Risk as "groundbreaking" and were also shortlisted for the Derivative imitative of the year for the Trading Risk Awards 2011 .
They mark a deepening of the market for smaller, more streamlined indemnity cat bond transactions that are fully tradable in the secondary market. The notes are unrated with no external modelling and no investment bank required for structuring. In what was also described as another first for the sector, the most recent "Jungfrau" transaction incorporates reinstatement for 2011 financed by the issue of second loss notes, and also introduced new sponsors to the CAT bond market.
The trade was also described by the press as "a significant step for the collateralised reinsurance market, as it demonstrated trading liquidity for an instrument that previously was bought by investors to hold until maturity.*
*typically CAT bonds pay out a fixed return at maturity if there is no underlying claim on the reinsurance contract(s) or tranches of risk which they ultimately capitalise. This structure enables the bonds to be traded, for example, after the end of the hurricane season but prior to maturity. No-loss returns over US T-Bills for the Jungfrau, Pollux and Dom series transactions range between 7.5% and 29.5% for a 12 month investment.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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