Liberty Mutual Again Taps Capital Markets Via Reinsurance Sidecar, Limestone Re

By | January 9, 2019

Liberty Mutual has once again directly tapped capital markets’ reinsurance capacity via the Bermuda collateralized reinsurance sidecar, Limestone Re Ltd.

Limestone Re provides approximately $150 million of collateralized reinsurance capacity for Liberty’s U.S. property catastrophe program, as well as its U.S. homeowners and global property reinsurance businesses, said Liberty Mutual in a statement.

The transaction comprises $58 million of Bermuda Stock Exchange listed 2019-1 Notes issued by Limestone Re Ltd., a segregated account company, with the remainder of the capacity provided via individual private placements, said the company.

This is the third time that Liberty Mutual has tapped capital markets and insurance linked securities’ (ILS) investors through Limestone Re. The Limestone Re sidecar took its first outing in December 2016 when Liberty Mutual entered into a multi-year transaction, which, together with individual private transactions, provided approximately $160 million of collateralized reinsurance. The second deal was announced in June 2018 when Limestone Re provided approximately $278 million of collateralized reinsurance capacity through Limestone Re and and individual private placements.

Reinsurance sidecars are generally quota-share and excess-of-loss arrangements whereby third party investors take on the risk and return of re/insurers’ specific books of business, based on a fixed percentage or through excess-of-loss protection. Liberty’s reinsurance sidecar is fully collateralized which means that funds are almost always available to pay claims when losses occur. (Funds are “almost” always available to pay claims because quota share covers are not unlimited. Losses revert to the cedent if they exceed the collateral specified by the contract.)

“The Limestone Re platform continues to be an integral component of Liberty Mutual’s strategy for accessing third-party capital,” said James Slaughter, senior vice president and chief underwriting officer of Liberty Mutual’s Global Risk Solutions strategic business unit. “Liberty Mutual’s global reach makes us uniquely positioned to provide insurance-linked securities (ILS) investors diversified pools of risk while bringing them as close as possible to the underlying insurance risks.”

According to Arno Gartzke, vice president and director of ILS, Liberty Mutual, the transaction successfully replaced the expiring Limestone Re 2016-1 placement. “Liberty Mutual remains committed to the ILS market and the continued support from our key partners, despite challenging market conditions, reaffirms the quality of risks which investors can access via Limestone Re.”

The Limestone Re vehicle is part of the expanding trend of sponsors that utilize sidecar transactions to access reinsurance and retrocessional capacity, said Aon Benfield in a report published in September 2017, titled “Insurance-Linked Securities – Alternative Capital Breaks New Boundaries.”

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