Artemis can reveal that specialist ILS manager Twelve Securis is the seller of a seasoned portfolio of life insurance-linked securities (ILS) that Hudson Structured Capital Management Ltd. (HSCM) is acquiring through the launch of a new fund, with this deal demonstrating the increasing sophistication of market players and growing maturity of the ILS sector.
Yesterday, we reported that Hudson Structured Capital Management Ltd. (HSCM), through the HSCM Bermuda unit, has raised $110 million to launch a new investment fund that has been specifically formed to acquire a seasoned portfolio of life insurance-linked securities (ILS).
HSCM explained that the HS Sawmill LP fund has been raised to fund the acquisition of a seasoned life ILS portfolio, as well as additional follow-on reserves, which we said at the time suggested an acquisition from another specialist manager of, or investor in, insurance and reinsurance linked assets.
With life ILS always having been a relative niche, within the niche of the insurance-linked securities (ILS) market, the list of possible sellers was not especially long.
We’ve now learned from a number of market sources that the seller of the seasoned life ILS portfolio was specialist Zurich-headquartered manager Twelve Securis.
Twelve Securis, in being formed through the merging of Twelve Capital and Securis Investment Partners, saw a wide-range of insurance-linked funds and assets brought under the resulting entity, a component of which was the Securis life ILS funds.
Over recent years, the life ILS fund market experienced a challenging time due to underperformance of certain assets, largely in the insurance-linked structured and alternative credit investments space.
Life ILS was a relatively small market sector as well, meaning the majority of life ILS fund strategies experienced negative effects as a result of a number of meaningful write-downs when certain deals turned sour.
But, the larger life ILS portfolios also continued to have productive assets within them, which to a specialist manager with the right appetite and expertise to manage them can still be very attractive.
Hence this transaction, that sees Hudson Structured acquiring assets from the legacy Securis life ILS portfolio, shows that sophisticated managers can come to an agreement on price and effect secondary transactions, that provide liquidity and value to both sides, allowing for the transfer of seasoned business.
As HSCM said in its announcement yesterday, the company is excited about the prospect of using its newly raised fund in “supporting development of secondary liquidity in the Life ILS asset class.”
As we explained, secondaries are relatively rare in the ILS market. But these are arrangements that can prove extremely valuable to enable liquidity for managers and investors under certain circumstances, while also providing a way for a manager, with an appetite to hold and manage the assets, to acquire them.
The key is on finding a price at which such transactions can be effected and that takes sophistication on both sides, in valuing and agreeing on the price and terms.
In this case Hudson Structured and Twelve Securis found a common ground, enabling this secondary trade of a seasoned life ILS portfolio to take place.
It’s a positive signal for the continued maturity of the insurance-linked securities (ILS) sector as well, as it shows two sophisticated specialists being able to agree on a trade, facilitating liquidity for one firm where the life ILS assets are perhaps less of a focus, while enabling another to acquire a new investment opportunity that likely comes at an attractive valuation.
We believe secondaries are going to become ever more important over time, as the ILS market grows and they signal growing maturity. In a similar way now for life ILS, as we’ve seen with the entry of legacy players in providing liquidity through acquiring trapped capital positions in the P&C ILS fund space.
Having learned the identity of the seller from our sources, we reached out to Twelve Securis for comment.
Dr Christoph Bürer, President of Twelve Securis and a founding partner of the firm, confirmed the deal and shared his view on this trade.
“As an investment manager, it is our duty to continuously optimise outcomes for our investors. At times, portfolio management activities include exiting illiquid positions to achieve investment objectives, and when executing on such transactions Twelve Securis have been working with the broader market and multiple parties,” Bürer explained.
Adding that, “We are pleased to note that a market for secondaries is developing in which Twelve Securis have been able to participate to the benefit of investors seeking finality. In such context, it is fundamentally important for investment managers to responsibly balance liquidity and value preservation on behalf of investors.
“We therefore welcome the increasing participation of sophisticated parties as it addresses limitations of established ILS structures in an efficient manner. We expect this development to support investor demand and to contribute to the further growth of the ILS market as it continues to mature.”
Also read: Hudson Structured raises $110m Sawmill fund to acquire seasoned life ILS portfolio.
