Resolute, Gallagher/KCC unveil contract to solve trapped capital

Resolute Global Partners, the Bermuda-based investment advisor specializing in re/insurance, has unveiled a new type of reinsurance contract, which it claims solves a number of problems that have vexed the reinsurance industry, including trapped capital.

Footprint, which it has created in collaboration with broker Gallagher Re and catastrophe modelling firm Karen Clark & Company (KCC), can be used for any type of catastrophic event, from severe convective storms and wildfires to hurricanes and earthquakes.

The first Footprint transaction is focused on severe convective storms, which are some of the most common and most damaging natural catastrophes in the US. These storms, which can include tornadoes, hail, and high winds, have become one of the costliest perils for insurance companies. As a result, insurance companies are demanding more coverage while reinsurers are limiting supply, a dynamic that highlights Footprint’s value in the market.
Footprint’s innovative structure solves a number of problems which Resolute claims have vexed the reinsurance industry since 2017. These include trapped capital, extended settlement times, economic inflation, social inflation, non-modelled risks, and pricing uncertainty.

The product’s benefits, Resolute claims, include rapid claim settlement (within 30 days of an event); automatic commutation (within 30 days of contract maturity); and fixed exposure risk. Unlike other products such as parametric triggers, industry loss warranties and cat bonds, this approach provides a more accurate assessment of storm losses than what is currently available, giving insurance companies cost-effective coverage and critical liquidity post-event while also offering investors a more efficient way to access the property reinsurance market and earn attractive returns.

Footprint’s process works as follows: An insurance company submits its exposure file, which is then fixed at the inception of the contract. In the event of a covered event, KCC will overlay the intensity footprints on the insurance company’s fixed exposure profile and determine the company’s ultimate loss. The loss, as determined by the model, is paid to the insurance company within 30 days. The contract is automatically commuted within 30 days of maturity, allowing investors to receive their original investment plus any profits, or less any losses, immediately.

Tom Libassi, co-founder and managing partner of Resolute Global, said, “We’re proud to lead the market with another innovative insurance solution. Footprint gives investors the opportunity to capitalize on the current attractive rate environment – freed from the problems the industry has been grappling with over the past several years. Given the much-improved structure, terms, and pricing that Footprint provides to insurance companies and investors compared with other contracts, we believe this product has the potential to transform the reinsurance industry.”

This transaction, and its future applications, are enabled by KCC’s advanced catastrophe modelling technology. For severe convective storms, the KCC model ingests more than 30 gigabytes of atmospheric data from satellites, global weather models, and radar each day, which are used in complex scientific algorithms to create high-resolution hail and wind intensity footprints. These footprints are then superimposed on a portfolio of properties to estimate the resulting losses.

Speaking to the product’s first transaction, Karen Clark, CEO of KCC, said: “Severe convective storm losses dominate weather-related property claims in the US, and KCC has invested substantial resources to develop the most advanced and accurate models. We’re thrilled to be working with Resolute Global to bring to the market this innovative transaction providing substantial cover for severe convective storm losses along with a transparent, timely, and highly efficient way for investors to access the market.”

Doug May, president, Gallagher Re North America, said: “We are pleased to have advised Resolute Global on this innovative reinsurance contract. In this challenging marketplace, we believe this new product will help expand the sources of capacity for our clients.”