Arbol sets up Bermuda collateralized insurer to tap capital market capacity

Arbol, a technology-led underwriter of parametric risk transfer, climate and weather insurance or reinsurance business, has become the latest company to establish a collateralized insurer class of company in Bermuda, named Arbol Re Ltd.

The Bermuda domiciled and regulated collateralized insurer class of company has become an increasingly popular structure for those looking to connect investors with sources of insurance or reinsurance risk-linked return.

Arbol Re Ltd. has now been registered by the Bermuda Monetary Authority (BMA) and for Arbol this now provides a platform through which it can continue to underwrite its parametric risks, but they can be backed by capacity sourced from the capital markets and also fully-collateralized.

Hong Guo, Arbol’s EVP & chief insurance officer, explained to Artemis, “Arbol Re Ltd. represents an evolution in Arbol’s ability to facilitate reinsurance transactions, with a particular emphasis on parametric reinsurance deals involving the capital markets.

“As a Collateralized Insurer, Arbol Re’s role is not to assume risk but to enable transactions that are entirely collateralized.

“This ensures a secure, efficient platform for both Arbol and the capital markets to manage and mitigate climate-related risks.”

It’s the latest evolution in Arbol’s platform, with the company now able to draw on third-party investor sources of risk capacity and facilitate transactions within its own regulated collateralized underwriting vehicle.

Bermuda’s regulator, the Bermuda Monetary Authority (BMA), developed the collateralized insurance and reinsurance class of Limited Purpose Insurer (LPI) in response to the increasing sophistication and scope of the insurance-linked securities (ILS) market.

It offers a structure that can be used for multi-transactional purposes, underwriting collateralized reinsurance, retrocession and other forms of ILS transaction, while dealing with numerous sources of capital, given the ability to segregate cells or transactions from each other.

For Arbol this will enable the company to flow parametric risk transfer deals into Arbol Re Ltd., to enable investors to connect with those risks.

This should augment Arbols’ risk capacity, with the company being more readily able to tap into capital markets investor appetite for the kind of risks it underwrites.

Collateralised insurers can provide a great deal of flexibility to their sponsors, by being able to face-off to multiple types of counterparties as well.

This provides a wider scope for the range of cedents and types of transactions that an ILS structure can enter into, than is possible with the more common, but more limited in use-case, special purpose insurer (SPI) vehicles.

Arbol reported earlier this year that it more than doubed its gross premiums underwritten in 2022, with the total rising to $170 million for the year.

The establishment and launch of collateralized insurance platform Arbol Re Ltd. should help the company continue to build on its premium volumes, while providing access to diversifying sources of risk capital.