ILS Capital unveils first ever $57m trapped capital securitisation deal

ILS Capital Management, a Bermuda-based investment firm specialising in insurance and reinsurance, has completed a $57 million reinsurance securitisation of so-called 'trapped capital', which the company believes paves the way to unlock a substantial portion of the industry's $15 billion of trapped capital.

The transaction represents the first-ever securitisation of trapped capital, investor funds that are temporarily held by counterparties and thus unavailable for reinvestment until insurance claims are settled.

It includes 51 contracts potentially impacted by 18 catastrophe events spanning the past three years and represents 70 percent of the total trapped capital across ILS Capital funds as of January 1, 2020.

The transaction included offering of 5.50 percent asset-backed notes, a securitisation of the residual value of trust accounts supporting reinsurance contracts.

The offering was issued by ILS Capital's newly formed subsidiary Parliament Street Finance. The transaction was marketed by BNP Paribas' Debt Private Placements and Asset-Backed Securities syndicate desks. It was placed with investors from global and regional asset managers and insurance companies.

Tom Libassi, co-founder and managing partner of ILS Capital, said: "We are delighted to have completed the very first transaction securitizing so-called trapped capital, solving an issue that has vexed our industry since it came to light following the losses related to the natural disasters of 2017 and 2018. By unlocking capital that would otherwise be kept from being redeployed, this transaction gets money back into the hands of our investors more quickly, making it available for new investments while still providing our investors with potential upside."