Demand for complex insurance debt is rising: HSCM Bermuda

Demand for insurance-related debt is increasing as investors enjoy the higher premiums associated with what is viewed as a complex investment and re/insurers seek new ways of raising capital, often to complement an equity placement.

That is the perspective of Hudson Structured Capital Management, which does its re/insurance business as HSCM Bermuda. Rachel Bardon, who has been promoted to deputy chief investment officer–HSCM Bermuda, told Intelligent insurer that demand for such products is increasing.

“There is a growing appetite. We have originated over $900 million of debt now and believe that there is a sizeable market. We are seeing high quality insurance-related debt continue to hold attractive risk premium due to the complexity of the investment.

“I am looking forward to continued work enhancing our investment processes and practices as deputy CIO of our broader re/insurance strategy as well as spearheading our debt origination.”

One high profile example of what Hudson does is a $150 million 10-year term loan credit facility it arranged for HG Global, a bond insurer platform owned by White Mountains Insurance.

Another example was back in 2017 when it participated as a lead investor in a $45.5 million private debt transaction issued for Catalina General Insurance, a subsidiary of legacy casualty sector specialist Catalina Holdings.

In addition to the insurance debt side, Michael Millette, HSCM’s managing partner and co-founder said, the business is very busy on the life side. This activity spans a number of different opportunities ranging from sidecars to run-off vehicles, from life insurance premium finance and pensions to insurtech opportunities in the life space.

Millette commented on the sentiment of insurance-linked securities investors, which is a big talking point in Monte Carlo in the context of a growing squeeze on property-cat capacity as more traditional reinsurers retract from the space.

He describes the overarching sentiment of investors as one of being “fatigued” after a number of years of losses, which started in 2017, and disappointing rate hikes in the aftermath of these events. He agrees rates are hardening, but they are only now approaching 2011 levels and remain well short of the peak the market saw in 2006, he said.

“It will be painful for a little while yet. Investors are fatigued by what they see as insufficient movement on rates. Capacity will return because both sides needed it.

“Maybe it will happen when rates move materially north of 2011 levels to take account of climate and inflation changes since then,” he concluded.