Galapagos Capital pre-authorised for structure to issue ILS in Brazil

Galapagos Capital, a global investment company headquartered in Brazil that offers a range of investment management, banking and financial services, has received pre-authorisation from the insurance regulator SUSEP to establish an issuer of Letra de Risco de Seguro (Insurance Risk Letters), which are Brazil’s own type of insurance-linked securities (ILS).

Galapagos Capital aims to become the first independent manager to issue the Brazilian brand of insurance-linked securities (ILS).

The investment firm had been rumoured to be pursuing the registration of its own Sociedades Seguradoras de Propósito Específico (SSPE), which is the name of the specific ILS special purpose vehicle that Brazil has now regulated for.

Letra de Risco de Seguro (Insurance Risk Letters) is the name for the insurance-linked notes that a Brazilian ILS SPV structure can issue, to be sold to investors allowing capital markets backed reinsurance capacity to be sourced.

In reports in the local news media, the Brazilian global investment firm Galapagos Capital is reported to have now secured the pre-authorisation from SUSEP for its own SSPE to be established.

The pre-authorisation now needs to be formalised through its publication in the Official Gazette of Brazil’s government.

Media reports suggest Galapagos Capital has established a team to work with the SSPE and arrange issuance of LRS securities.

Speaking with media company NeoFeed, Galapagos Capital partner Roberto Takatsu said that the company saw an opportunity in this emerging area of convergence of the insurance and capital markets in Brazil.

“We are experiencing the pains of pioneering in structuring and we have talked a lot with regulators. But for us it was an obvious movement to enter this market and we are already seeing a very strong demand,” Takatsu told NeoFeed.

Adding, “Up until 2022, it was only possible to pass on the risk within the insurance market. Now, investors and the capital market will also be able to access this market.”

He went on to explain that initially the potential in LRS’ for the Brazilian insurance and reinsurance market may be in financial guarantee type arrangements, while catastrophe reinsurance use-cases could come later, as demand grows, expecting that the ecosystem around the Brazilian ILS market will need to mature.

“The capital market likes to take credit risk, so it is more natural to start with financial guarantees. Agribusiness is also a sector that has a lot of interest in passing on risks, and this should develop quickly,” Takatsu explained.

Galapagos Capital hopes to be utilising the SSPE license to issue LRS in early 2025 and the company has an ambitious goal to reach as much as R$3 billion of the securities issued in the first year. To stimulate interest, the investment firm is already in discussions with Brazil’s insurance and reinsurance community.

In time, Galapagos Capital hopes that Brazil’s ILS structures can bring new capital into the market to support expansion of insurance and reinsurance capacity, to also support more of the risks that are currently uninsured.

It’s another signal that Brazil’s ILS initiative will gain traction with time and comes on the heels of the news that Brazilian insurance regulator SUSEP recently authorised the first insurance-linked securities (ILS) structure in the country, with Andrina SSPE having been sponsored by reinsurer IRB Re and now approved to issue Letra de Risco de Seguro (Insurance Risk Letters).