ILS Capital's reinsurer Prospero Re assigned financial strength rating by KBRA

Bermuda-based Prospero Re, a Class 3A licensed reinsurer wholly owned by ILS Capital Management (ILS Capital), has been assigned an insurance financial strength rating (IFSR) of 'A' by Kroll Bond Rating Agency (KBRA).

Prospero Re was incorporated in 2013 and offers both catastrophe and non-catastrophe reinsurance coverage to a wide range of re/insurance companies, predominantly in the US, Europe, UK, Canada, Japan and Australia. Business assumed includes property, marine, and offshore energy, as well as aviation and other sectors within the reinsurance market.

Prospero Re is utilised in the provision of fully collateralised reinsurance protection for ILS Capital’s institutional fund, The 1609 Fund Ltd.

KBRA said that the rating reflects Prospero Re’s "sound capitalisation, seasoned management team and collateralised reinsurance structure".

In order to address concerns about the opportunity cost of collateral trapped by the catastrophe events of 2017 and 2018, the company is planning to restructure its operating model so that it retains the benefits of the collateralised reinsurance model while adding an element of leverage that is more reflective of traditional reinsurers.

KBRA explained that under Prospero Re’s revised operating model, "reinsurance contracts are to be collateralised by investors to a 1 in 500-year event. The remaining investor funds will be used to assume additional business, creating moderate underwriting leverage, and to support the tail risk of the collateralized reinsurance contracts to slightly more than a 1 in 1000-year event."

"Prospero Re’s new operating model will bring even greater diversification as additional types of risk are added to the portfolio," it said.

The proposed business plan is yet to be approved by the Bermuda Monetary Authority (BMA) as Prospero Re’s current license prohibits the company from implementing this new plan until approval is granted.

KBRA, which has issued a stable rating outlook to the company, noted that Prospero Re is a small competitor in a large market, dominated by well-capitalised companies with established franchises, some of whom have significant presence in the alternative capital market.

It added that stable outlook reflects KBRA’s expectation that the BMA will approve Prospero Re’s revised business plan as presented to KBRA. Additionally, KBRA expects Prospero Re to maintain sound capitalisation and retain its management team while balancing various stakeholder expectations so the company can maintain a BSCR (ECR) ratio within its target range over the medium term.

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