ILS vehicles can write more casualty risk

The insurance-linked securities sector can underwrite more casualty risk, a broker said yesterday. 

Shireen Gammoh, managing director within the Legacy and Structured Reinsurance team at Howden Re in Bermuda, said the casualty and legacy markets were both “huge” and vehicles were being designed to cater to these types of risks. 

Speaking on a panel on how to bring specialty lines into ILS, said investors were sometimes reluctant to enter lines outside of catastrophe bonds because of their long tails and risks of trapped capital.  

But she said solutions to the problem were being developed, citing the creation of Fractal Re by Starwind Specialty Insurance Services last week.  

Starwind, a subsidiary of TIH, collaborated with Stone Point Credit to establish Fractal Re, a collateralised reinsurer.

The launch, which includes a $270 million equity capital raise, aims to bolster reinsurance capacity for Starwind's diverse casualty programme portfolio.

The capital raise included contributions from a mix of institutional and industry investors, including Nationwide and Enstar Group, as well as investments from the TIH investor group and the Starwind management team.

As part of the launch, State National will expand its partnership with Starwind by becoming the fronting carrier for Fractal Re.

The multi-year reinsurance agreement between Starwind and Fractal Re was set to take effect from October 1, 2024.

Concurrently, Enstar's subsidiary has crafted an agreement offering sidecar investors a novation transaction option for achieving finality after a designated period.

This initiative, known as the forward exit option, is a bespoke solution by Enstar to cater to the needs of third-party insurance-linked securities investors seeking conclusive transactions, the company said. 

TIH Underwriting CEO Bill Goldstein said: “The launch of Fractal Re demonstrates Starwind’s ability to meet the needs of our customers and distribution partners by expanding our casualty and specialty capacity.”

Gammoh said the vehicle enabled investors to exit the investment after a number of years. 

She said casualty should be attractive to investors who took a long view and who were comfortable with a high frequency low severity class, versus catastrophe bond investors, where low frequency and high severity losses were more typical.  

She said legacy insurers could offer mutually beneficial solutions for the ILS sector by relieving trapped capital and organising planned exit solutions through sidecars and other vehicles. 

The panel was moderated by Darren Redhead and other participants were Miles Staples, head of specialty and senior vice president at Vantage Risk, and Alex Kirkby, SVP at Ascot. 

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