Reinsurance Transformer

Solidum Partners owns an insurance Incorporated Cell Company, Solidum Re (Guernsey) ICC Limited, which is licensed by the GFSC to write reinsurance worldwide. Using Solidum Re, Solidum can transform Collateralized Reinsurance contracts into listed, private placement notes.

These private placement notes are purchased by Solidum-managed funds, but also some larger issues are purchased by other ILS funds and institutional investors seeking risks that they cannot source through the Cat Bond market.
Should a single institutional investor wish, Solidum can source, advise and transform risk through Solidum Re on a fully private basis for such investor, allowing them to access and assume risk within the broader reinsurance market to provide increased yield and/or increased diversification to a pure Cat Bond portfolio.

For a new Solidum Re note issue, a cell in Solidum Re ICC is created. Unlike a Protected Cell Company each cell in an Incorporated Cell Company (ICC) is a separately incorporated entity in its own right. The newly incorporated cell then securitizes the reinsurance contract issuing notes in much the same way as a cat bond:

The notes issued by the IC are settled over Euroclear and certain larger issues have been listed on the Vienna Stock Exchange and on the Channel Islands Stock Exchange. Weekly price marks have also been provided by various broker-dealers for weekly / monthly valuation purposes.
Whereas the Solidum Re notes are very similar to Cat Bonds, there are certain differences. These include:

  1. Investment of the collateral into T-Bills with matched duration to payment dates under the reinsurance agreement and the notes. This improves return when compared to investing in Treasury Money Market Funds and avoids the possibility of any of the funds ‘breaking the buck’.
  2. The reinsured does not have ‘on-demand’ draw rights on the collateral – all claims must be agreed by the board of the Issuer. This ensures that the noteholder is not assuming the credit risk of the reinsured ‘through the back door’.
  3. They are structured as zero coupon notes of a 1-year duration. This reduces any mark-to-market devaluation due to market supply and demand when compared with longer-dated cat bonds and typically allows the premium to be used as extra leverage thereby enhancing the return.