Sector developments and company hires

ILS

Peak Reinsurance Company has launched Asia’s first sidecar transaction via a new Bermuda-domiciled special purpose insurer, Lion Rock, to provide collateralised retrocession for part of Peak Re’s global property reinsurance risk portfolio. The establishment of this special financial structure, referred to as a “reinsurance sidecar”, allows investors to take on the risk and benefit from specific books of an insurance or reinsurance company. As part of the deal, Lion Rock Re has entered into an exclusive quota share agreement with Peak Re to reinsure part of Peak Re’s global property reinsurance risk portfolio. Lion Rock Re has successfully secured commitments of US$75m from a panel of third-party investors globally. The transaction is expected to close in mid-December 2018. Aon Securities is the structuring and placement agent of the transaction.

Legacy RMBS settlement reached

Attorney General Lisa Madigan has announced a US$17.25m settlement with Wells Fargo as a result of the bank’s misconduct in its marketing and sale of risky RMBS leading up to the 2008 economic collapse. The settlement with Wells Fargo resolves an investigation by Madigan’s office over the bank’s failure to disclose the true risk of RMBS investments. Under the settlement, Wells Fargo will pay $17.25m to the state that will be distributed among the teachers retirement system of the state of Illinois, the state universities retirement system of Illinois, and the Illinois state board of investment, which oversees the state employees’ retirement system.

RFC on fallback language

The Alternative Reference Rates Committee (ARRC) has issued a public consultation on US dollar Libor fallback contract language for securitisations, which outlines draft language for new contracts that reference Libor to ensure these contracts continue to be effective in the event that Libor is no longer usable. The consultation proposes one specific hardwired approach regarding triggering events and the waterfall for rate determination, and addresses the challenges presented by securitisation asset and liability components. The effort is part of the ARRC’s mandate to help in addressing risks in contracts referencing Libor and builds on its work developing the Paced Transition Plan, which includes steps for an effective shift to the ARRC’s recommended alternative reference rate, the Secured Overnight Financing Rate (SOFR). Comments should be sent to the ARRC Secretariat by 5 February 2019. Following the 60-day comment period, the ARRC will issue final contract language recommendations for securitisations, for voluntary use in future Libor contracts.