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Aspen in pioneering $420mn recoverables securitisation

Bermudian (re)insurer Aspen Insurance Holdings Ltd has taken the innovative step of wrapping a credit derivative structure around a portfolio of its reinsurance recoverables, in a $420mn transaction with investment bank Deutsche Bank.

The RK Carvill-advised deal - a further demonstration of the creative relationship between capital markets and the (re)insurance sector - effectively involves an insurance policy to protect a portfolio of Aspen's reinsurance contracts against the risk of default as a result of inability to pay.

Aspen CEO Chris O'Kane said the deal is evidence that the (re)insurer has "embraced the convergence between the traditional reinsurance market and the capabilities and depth offered by the capital markets".

The five year policy covers current and future receivables under existing policies and further reinsurance policies taken out through its term, and is triggered by "certain non-standard credit events designed to isolate the specific nature of counterparty risk in the reinsurance market".

Aspen, which last month geared up its balance sheet with a $200mn hybrid offering and gave a bullish assessment of 2007 earnings prospects, had total reinsurance recoverables at 30 September 2006 of $788mn.

Nick Foden-Pattison, a director at broker RK Carvill, said Aspen benefits from a "clear mechanism for obtaining enhanced recovery in the event of a reinsurer's default".

Aspen's CFO Julian Cusack added: "We are effectively compartmentalising risk amongst investors with different risk profiles. What makes this interesting is that there is no significant correlation of risk between a major catastrophic event and capital markets event risk."

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