AlphaCat Managers, Ltd., AIG’s third-party reinsurance capital and insurance-linked securities (ILS) unit, has announced a new ILS transaction with Ledger Capital Markets, LLC.
The transaction relates to the direct securitisation of a non-standard passenger auto insurance portfolio, and brings a new class of business to the ILS investor community. The deal includes a private placement of two tranches of notes amounting to $10 million, which is comprised of a $6.67 million senior note and a $3.3 million junior note.
According to an announcement on the transaction, the junior note will pay ILS investors retained earnings after payments made in order to support the senior tranche. The junior tranche acts as a profit and loss share of the managing general agent (MGA), which is AmWINS Specialty Auto, an MGA arm of AmWINS.
This is the first time that Ledger has acted as the structurer and bookrunner for a bilateral ILS transaction between an ILS fund and an MGA. The deal, reportedly dubbed Newport 2019-1, saw AmWINS specialty Auto MGA cede a portfolio of non-standard passenger auto insurance portfolio via a fronting agreement with Redpoint Insurance Group, to the Newport segregated cell of Artex SAC Ltd., a special purpose reinsurance vehicle.
The announcement also explains that the funding for both notes is variable with just-in-time capital contributions that are designed to closely match any increase in risk that might occur as the underlying auto insurance portfolio expands.
AlphaCat Chief Executive Officer (CEO) Lixin Zeng, commented: “We’re pleased to lead the ILS market expansion beyond property catastrophe and reinsurance sourced risks. This facility’s novel structure enables MGAs to upsize more nimbly and AlphaCat to deploy our clients’ capital more efficiently.”
Ledger Capital Markets, which is the broker-dealer unit of InsurTech and ILS startup, Ledger Investing, Inc., is to provide ongoing analytics to assist in the servicing in this type of ILS transaction.
Samir Shah, CEO of Ledger Investing and ex-head of Insurance Capital Markets at AIG, added: “This innovative transaction creates new ILS market opportunities in securitizing broader classes of insurance risk. We look forward to working with more MGAs and insurers.”
