Tullett Prebon, the electronic and voice interdealer broker and part of the TP ICAP group, has announced the successful settlement of the first Insurance Linked Note (ILN) transaction via its ILN trading and issuance platform.
The firm’s ILN platform was launched in September of last year, and initially features catastrophe industry-loss ILN instruments. Following onboarding of the first group of clients to its ILN platform, Tullett Prebon has now completed its first issuance and settlement of catastrophe risk linked notes.
ILNs are fully collateralised, securitised, listed and tradable instruments. Tullett Prebon explains that they are industry loss based instruments, similar to ILWs, but structured to provide clients with a more cost efficient method of protecting, investing and hedging catastrophe risk.
Head of ILS at Tullett Prebon, Steve Emmerson, said: “The ILN platform from Tullett Prebon introduces a unique combination of tools under one roof, including real time ILN risk analytics, the ILN issuance vehicle, our voice assisted trading platform, and ILN market data. This enables all approved counterparties to design, analyse and trade in catastrophe risk.
“We can issue ILNs for as low as USD5m in size, which tends to be impractical for industry loss based Cat Bonds due to the issuance costs involved. And unlike ILWs, these are tradable instruments and provide for anonymity between parties.
“We have worked hard for some time now to bring this to fruition, alongside many partners and service providers, including our partners at Artex Risk Solutions (Bermuda) Ltd, Analyze Re as well as our clients.”
Executive Chairman of Artex in Bermuda, Rob Eastham, said: “We are delighted that Artex is one of Tullett Prebon’s key partners in the introduction of this transformational product, which provides both market liquidity and a cost-efficient trading solution. As Steve mentioned, the design and launch were a significant task which we believe will greatly benefit the ILS industry, with the end goal of becoming the platform of choice for future innovation in index linked trading.”
Adrian Bentley, Managing Director of Analyze Re, added: “We are excited to be working with Tullett Prebon on this innovative product and our aim is to provide the most flexible and transparent picture of risk for each potential ILN prior to trading. All registered users will have access to our real-time analytics which will enable protection buyers and sellers to instantly evaluate the risk based on factors including geography, type of catastrophe, and trigger level.”
Two of the fully onboard clients that participated in the first transaction, ILS fund manager LGT and Schroders, noted the breakthrough.
Christian Bruns, Partner and Portfolio Manager at LGT ILS Partners, said: “We are constantly exploring new ways of accessing reinsurance transactions on behalf of our institutional investor base. We were structuring the first cat bond light deals back in 2012 and launched Lumen Re as our rated balance sheet in 2017. Tullett Prebon’s ILN platform is now taking ILS innovation one step further and represents a very efficient new tool to both protection buyers and sellers. We are excited being the first ILN clients to execute a deal on this new platform.”
Daniel Ineichen, Head of Fund Management, Schroder Secquaero, added: “We congratulate the team at Tullett Prebon for the successful launch of its ILN platform. We believe that this innovative solution has the potential to further accelerate the growth of the ILS market. The degree of transparency provided in combination with the flexibility to buy or hedge risks, offers an effective and cost efficient way to enhance the management of ILS portfolios.”
PCS acted as reporting agent for the first deal, which again, was an industry loss based transaction. Head of PCS, Tom Johansmeyer, commented: “We’ve been champions of the tradable risk concept for years and have long believed it’s been a matter of “when” rather than “if”.
“With the successful completion of the first ILN, it’s clear that the global reinsurance market has taken a step into a new era in which liquidity, speed of execution, and regular access to reliable loss reporting will enable cedents and markets to optimize their capital and manage risk more effectively. We’re pleased to be the reporting agent for the first ILN transaction and look forward to continuing to support this market.”
Tullett Prebon states that following the completion of the first deal, the Tullett Prebon ILS desk is set to host regular auctions to secure the next wave of transactions for fully onboard trading counterparties.
