LONDON Nov 30 Bermudan reinsurer Montpelier Re has launched a dedicated catastrophe reinsurance investment vehicle on the Bermuda and London Stock Exchanges to tap into investor appetite for alternative financial market assets.
Blue Capital Global Reinsurance Fund Limited will invest in fully collateralized reinsurance-linked contracts that provide protection against natural disaster risk, and will begin trading on the London Stock Exchange's (LSE) Specialist Fund Market and the Bermuda Stock Exchange (BSX) on Dec.6, Montpelier Re said in a statement on Friday.
Collateralized reinsurance, or 'Insurance-linked securities' (ILS), enables institutional investors, hedge funds, and pension plans to participate in the reinsurance market and provide risk capital to those entities that wish to transfer risks directly to end investors.
ILS are innovative but increasingly popular instruments such as catastrophe bonds that give investors an income in exchange for promising to pay some claims if a natural catastrophe occurs.
ILS sales have burgeoned this year thanks to a growing perception that they are insulated from mainstream financial and economic shocks.
The fund will invest in natural catastrophe risk in North America, Europe and Asia.
Blue Capital will target an annualized dividend yield of LIBOR plus 6 percent on the Issue Price of the Ordinary Shares and a net return to shareholder of LIBOR plus 10 percent per annum, Montpelier said.
The reinsurer said insurers are increasingly looking for collaeralised reinsurance protection to reduce credit risk - meaning the deal is collateralised, which guarantees a payout if the transaction is triggered.
Traditional reinsurance is a contractual commitment between an insurer and reinsurer where the reinsurer assumes a portion of the insurance company's risk in exchange for an agreed upon amount of premium.
In 2011, $240 million of exposure was traded in the global catastrophe reinsurance market, with 88 percent traded through the traditional reinsurance market, and 12 percent through ILS products.
-(Reporting by Sarah Mortimer; editing by Ron Askew)