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
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
ILS sales have burgeoned this year thanks to a growing
perception that they are insulated from mainstream financial and
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
-(Reporting by Sarah Mortimer; editing by Ron Askew)