Enstar $350m ILS legacy deal included COVID-19 exposures, expands its run-off portfolio

Legacy and run-off reinsurance specialist Enstar completed the first loss portfolio transfer (LPT) for prior-year insurance-linked securities (ILS) reserves recently, providing an example of the type of trapped ILS capital solution the industry has been looking for and the company highlights this move as an expansion of its run-off portfolio.

Enstar, in announcing the deal, said that in a transaction that closed on July 25th 2024, the company has signed a $350 million agreement that sees it providing reinsurance cover to a player in the insurance-linked securities (ILS) market.

As we suggested at the time, this arrangement will free-up trapped ILS capital for a third-party reinsurance capital platform, so it appears to be the kind of trapped capital solution that many in the ILS market have explored in recent years.

Enstar hailed the arrangement as the first deal of its kind for a third-party capital platform.

The company has said that it has, “expanded our run-off portfolio to reinsure certain property catastrophe risks written by third-party capital platforms which are funded by Insurance Linked Securities (“ILS”),” which suggests the company sees this as an opportunity.

By entering into this new business area, Enstar could cement itself a key role in providing trapped ILS capital and legacy ILS solutions to the market and is a player in the run-off market with the scale to be able to achieve this on a relatively meaningful basis.

Enstar also said that, “We seek opportunities to execute creative and accretive transactions by offering innovative capital release solutions that enable our clients to meet their capital and risk management objectives.

“Should we execute additional transactions, our mix of loss reserves by line of business, asset mix and both rate and timing of earnings may be impacted in the medium to long term.”

It’s also notable that Enstar has disclosed the perils covered by what we now know to be a loss portfolio transfer (LPT) arrangement for the unnamed ILS or third-party reinsurance capital manager.

Enstar said that the exposures featured in the $350 million LPT deal with an ILS capital specialist are property catastrophe and COVID-19 exposures.

That is notable, as ILS managers and third-party capital structures have in some cases been negatively affected by contracts that were trapped due to the potential for COVID-19 related business interruption losses to impact them.

Trapped ILS capital related to potential COVID-19 exposures largely came through certain property and retrocession arrangements and had proved a considerable drag on capital for some ILS strategies, we understand.

So the fact Enstar has been able to assess these reserves, price an LPT transaction around them, and help an ILS related strategy release some of the capital that has been trapped, demonstrates the run-off specialist’s expertise and drives home the fact this could be a significant opportunity.

While everyone will be hoping not to see similar challenges to those posed after COVID-19 related exposure drove trapping of ILS capital, through collateralized reinsurance and retro deals, having options to transfer the trapped reserves to a specialist could prove a very useful service to the ILS market going forwards and an attractive new business opportunity for Enstar.