Progression in collateral release terms for CRI & sidecars: Gallagher Securities

There is evidence of progression in the collateralized reinsurance (CRI) and sidecar marketplace, as updates to terms and conditions show some promise, according to Gallagher Securities.

The collateralized reinsurance and reinsurance sidecar space has remained relatively stagnant for a while, as the investor base and cedents absorbed losses and the ramifications of event-specific impacts.

While some capital has left these areas of the insurance-linked securities (ILS) market, particularly on the quota share reinsurance sidecar side of things, sponsors of such vehicles, ILS fund managers, structuring teams and brokers have been working on ways to manage the investor relationship and capital more equitably for a while now.

Efforts that it now seems are starting to bear fruit, according to Gallagher Securities, the capital markets and ILS focused unit of reinsurance broker Gallagher Re.

In the latest reinsurance renewals report from Gallagher Re, the Securities team wrote about trends seen in the first-quarter across ILS.

Citing a “productive” first-quarter of catastrophe bond issuance, they highlight deal count and issuance volume as robust.

“The cat bond instrument remains attractive to investors, with industry index cat bonds continuing to attract narrow margins and favourable pricing for sponsors,” Gallagher Securities explained.

On the other side, the less-liquid and more prone to trapped capital, collateralized reinsurance and sidecars, Gallagher Securities believes progress is being made.

“Whilst the collateralised reinsurance and sidecar markets remain relatively stagnant,” the team wrote, “adjustments to contract terms and revisions to collateral release mechanics designed to be mutually acceptable, suggest progression in the space.”

This is positive, as it could herald an easier time for sponsors and ceding companies looking to welcome more third-party investor capital into structures like sidecars and private quota share based ILS arrangements again.

This capital had partly dried up, after heavy loss years and prolonged trapped capital issues, so any enhancements to the terms surrounding collateral release would be positive and could encourage some capital back to these arrangements.

In addition, the Gallagher Securities team is positive on investor sentiment at this time, particularly about new areas of risk.

“We continue to see interest from existing and new investors and cedants in expanding the range of risks suitable for ILS investment,” they explained.

Something that was well-evidenced yesterday by RenaissanceRe’s launch of its first third-party capital investor casualty and specialty joint venture.