Generali completes first ILS deal to cover motor third party liability

Italian insurer Assicurazioni Generali has completed an innovative deal through the issuance of insurance-linked securities (ILS) that provides it with €225 million of protection from bond investors against the deterioration of the loss ratio of its motor third party liability portfolio.

The protection covers 12 of its core subsidiaries (in aggregate) located in seven countries in Europe (Italy, Germany, France, Austria, Czech Republic, Spain and Switzerland) for three years and is calculated on an annual ultimate loss basis. This is the first time ILS has been used to cover a risk of this type.

Generali said the deal allows it to better manage the possible volatility of its loss ratio and its solvency ratio, while at the same time leaving its subsidiaries to act in accordance with their underwriting discipline and claims management best practice.

The fully collateralized coverage is provided by Horse Capital I, an Irish designated activity company. This company has issued three tranches of notes, sold to capital markets investors in a Rule144A offering, each in the amount of €85 million and each with different risk profiles.

The deal enjoyed strong demand from investors and was upsized by more than 40 percent from the initially proposed €180 million on the back of this. Willis Capital Markets & Advisory was the sole structuring agent and joint bookrunner on the deal.

Alberto Minali, the general manager and group CFO of Generali, said: “The transaction that we designed further demonstrates the advanced approach of the Group to the capital management and risk mitigation techniques.

“The success of this initiative, only few weeks after our last Investor Day in London, is also a clear confirmation that the capital markets appreciate once more the initiatives that the Group is undertaking to optimize its capital allocation in line with our strategy.”

Bill Dubinsky, head of ILS at Willis Capital Markets & Advisory, said: “From the onset, we believed that capital markets investors were well placed to support this type of risk (i.e. MTPL loss ratio). By structuring the transaction to meet the requirements of investors for transparency as well as the robustness of payment mechanics, we achieved an efficient and effective hedge for Generali supported by a broad panel of investors.

“Through this transaction, Generali opens the door to substantial opportunities with innovative ILS risks for both investors and potential sponsors going forward.”

Tony Melia, CEO of Willis Re International, added: “We are very pleased that Generali, one of the leading insurers globally, brought this exciting transaction to market. It demonstrates Generali's ability to optimise its usage of reinsurance and other risk mitigation techniques to support the achievement of key financial objectives.

“With the implementation of Solvency II we are seeing increasing interest from leading insurance groups to work with Willis Towers Watson to structure innovative covers that meet their specific needs.”

Rafal Walkiewicz, CEO of Willis Capital Markets & Advisory, added: “In recent years we have faced unprecedented growth in natural catastrophe cat bonds issuance but innovation outside of nat-cat risk has been slow. Willis Capital Markets & Advisory prides itself on structuring innovative solutions to offer capital market investors the opportunity to buy directly into a full spectrum of insurance risk.

“Working side by side with our Willis Re colleagues we deliver new products that help our clients benefit from capital markets disruption of the traditional reinsurance market.”