Horse Capital I: the first bond closed by Generali for the protection of its MTPL portfolio’s loss ratio
22 December 2016 - 14:02
- Generali is the first insurance company optimizing its balance sheet protection through capital markets in respect of unexpected fluctuations of the loss ratio in MTPL business
- First ever 144A Insurance Linked Security (ILS) placement on MTPL loss ratio
Trieste – Assicurazioni Generali has entered into an agreement with Horse Capital I, an Irish designated activity company, to protect the aggregate motor third party liability (MTPL) loss ratio of 12 of its subsidiaries that write business in the 7 European countries in which Generali has a relevant market share in motor business (Italy, Germany, France, Austria, Czech Republic, Spain and Switzerland). Generali has successfully set up this Group protection against unexpected fluctuations of the MTPL loss ratio by transferring part of the related risk to the bond investors.
Horse Capital I has issued three tranches of notes, each in the amount of €85 million and each with different risk profiles, for a total amount of €255 million. The notes have been placed with capital markets investors in a Rule144A offering. The transaction is the first ever Rule 144A capital market placement providing protection in respect of MTPL business in the market.
The General Manager and Group CFO of Generali, Alberto Minali, commented: “The transaction that we designed further demonstrates the advanced approach of the Group to the capital management and risk mitigation techniques. The success of this initiative, only few weeks after our last Investor Day in London, is also a clear confirmation that the capital markets appreciate once more the initiatives that the Group is undertaking to optimize its capital allocation in line with our strategy”.
Horse Capital I is an innovative ILS transaction that provides Generali with a three year cover that is fully collateralized. It allows Generali to better manage the possible volatility of its loss ratio and its solvency ratio, while at the same time leaving the subsidiaries to act in accordance with their underwriting discipline and claims management best practice.
The demand from capital market investors has allowed the protection provided to Generali to be upsized by more than 40% from the initially proposed €180 million. Generali will pay a different premium depending on the tranche, being 4% on Class A, 6.25% on Class B and 12% on Class C, each per annum on the amount of cover provided corresponding to the amount of the relevant tranche of notes.