Twelve Capital to launch dedicated life ILS fund in 2023

ILS fund manager  Twelve Capital will launch a pure-play life insurance-based ILS fund in 2023, building a portfolio chiefly on securitised premiums in bespoke deals in tandem with partner Farsight Partners, top officials of the two companies have said.

“Life ILS has been the missing piece in the offering of Twelve Capital,” co-founder and executive chairman Urs Ramseier told a webinar. “We plan to launch the first fund later in this year – a closed-end life ILS fund.”

Twelve Capital will work hand in hand with long-time partner Farsight Partners, which will identify, negotiate and structure assets for the pending portfolio.

“We think it is best done on an opportunistic basis,” the CEO of Farsight Partners, Paul Whiting (pictured), said. “In life we found different sectors are more attractive at different times.”

With a fractional $1 billion or so in existing securities to pick from on the market, the new fund will instead go hunting on the life insurance market for smaller carriers in need of alternative financing options, then write up bespoke deals, Whiting indicated.

A focus on bespoke solutions should make potential sponsors come out of the woodwork. “We are not a passive taker of risks,” Whiting said. “We are a proactive provider of solutions to counterparties.”

Investments are structured as an initial capital outlay paid off via a set period of securitised premium flows, independent of the carrier’s balance sheet or P&L, with pre-established triggers against mortality, morbidity or longevity thresholds. Whiting considers it insurer financing in which investors can swap out insurer credit risk for lapse risk and mortality/longevity risks.

Unlike non-life ILS portfolios, consistently dominated by nat cat, life risks can potentially vary widely in structure. Underlying risks can range from narrow groups to broad slices across demographics and geographies, each with their own risk profile capable of balancing a larger portfolio, Whiting argued.

Sides are counting on a first-mover premium. Whiting cited the early issuance of the health care extreme cost bonds from Vitality Re which sold at a 600 basis point (bps) risk spread and quickly traded down to 200 bps.

“We think this illustrates a roughly 400 bps novelty premium and it is that sort of premium we are looking to capture by being one of the more proactive and expert operators within this niche,” Whiting said.

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