Independent Zurich based insurance-linked securities (ILS) and catastrophe bond fund manager Plenum Investments Ltd. is partnering with Bermudian collateralized reinsurance and ILS investments start-up Sequant Re to launch a new high-yielding ILS fund.
The partnership will see Plenum launching its first ILS fund which is not a cat bond only strategy, with Sequant Re sourcing and underwriting the collateralized reinsurance transactions.
This partnership pits the underwriting experience of Sequant Re's team alongside the capital market and ILS investment expertise of Plenum, enabling each to focus on defined roles to make this new fund launch a success.
For Plenum, the partnership helps the ILS investment manager to expand its offering outside of pure cat bonds, by leveraging Sequant Re's underwriting expertise and segregated cell approach to ILS investments.
For Sequant Re, the partnership helps the company gain access to a new source of third-party reinsurance capital, tapping into Plenum's expertise in marketing ILS funds and managing investor relations, as well as gaining exposure to the Plenum investor base.
"Many of the current ILS investment funds are highly exposed to peak risks, such as US wind. They have limited access to invest in other lines of business" commented Rainer N. Gruenig, CEO of Plenum Investments Ltd.
"We are delighted to partner with Sequant Re and bring to the market an ILS offering that will add value to investors," Gruening continued.
As the reinsurance market changes and adjusts to the growing interest from third-party investors, the growth in ILS and the race to efficiency in capital deployment, this partnership enables both parties to bring new investment options to the market.
With balanced and diversified approaches to investing in reinsurance risks increasingly attractive to institutional investors, such as pension funds, sovereign wealth investors, endowments and family offices, this new fund should see interest from Plenum's existing investor base, as well as new investors looking at the ILS market.
"The biggest opportunity for ILS in the future lies in opening up more of the reinsurance market to collateralized solutions and increasing the diversification of transactions available to ILS investors," added Guy Cloutier, CEO of Sequant Re.
"We are thrilled to be working with the Plenum team who bring to the table capabilities that nicely complement our reinsurance operation," Cloutier added.
Leveraging the track record and expertise in ILS fund management of Plenum, alongside the expertise in sourcing, underwriting and modeling a wide range of reinsurance lines of business, the partnership hopes to gain access to risks not always commonly accessible to ILS managers.
The fund will target attractive returns, both absolute and risk-adjusted, as a result of its access to risk and investment management strategy. The firms have established a transparent process for risk selection and underwriting, combining their respective skill sets and working closely together.
A common Investment Committee will establish underwriting guidelines under which Sequant Re will operate and underwrite its risks. Meanwhile Plenum will control selection and funding of transactions entered into, with Sequant Re binding the risks as and when capital is allocated.
This is key, as having a robust framework for the partnership in place will ensure alignment on the standards followed and risks underwritten. According to Cloutier, "this ensures a high level of transparency and necessary checks and balances for greater investor protection."
It's a fascinating partnership, as it sees an established ILS investment fund manager partnering with a reinsurer with a focus on collateralized underwriting. To date partnerships have tended to involve ILS managers with traditional players, but Sequant Re is focused on underwriting for ILS and that is perhaps a perfect fit for Plenum.
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