Linking SRT originating banks with insurance partners

Texel is aiming to help insurers and banks bridge gaps in their understanding of how each sector approaches significant risk transfer transactions. With insurers expected to become more active in the capital relief trades market, the firm’s structured and bespoke solutions group last month recruited former Qbera Capital securitisation advisory head Paul Petkov (SCI 15 May), who has previously held several senior balance sheet optimisation roles at a number of leading banks.

Alan Ball, of Texel’s structured and bespoke solutions team, notes: “Given Paul’s experience in the banking sector - where he established and ran several major SRT programmes for a number of banks - our aim is to add value to our clients by bridging the gaps in knowledge, understanding and perspective that can sometimes exist between our bank clients and insurers entering the SRT space. We are able to help underwriters understand what does and doesn’t make sense for the bank and the parameters our clients must operate within in order to make a deal work with insurance. Equally, we’ve always considered it important to articulate to our bank clients how insurers think about risk, particularly in developing areas of the market such as SRT transactions.”

Being able to share the insights of somebody who has been on the origination and structuring side of the SRT market should give underwriters greater confidence that they are thinking about and approaching these transactions with the right perspective and expectations, which ultimately benefits clients by helping them to close deals. Ball explains: “Insurers don’t necessarily have a full view of how banks think about SRT transactions and vice versa. Without this insight, there is scope for increased execution risk, which we want to mitigate for our clients while minimising any additional heavy lifting required from the deal teams at our clients.”

With underwriters, Texel is able to work through how they might think about modelling a deal or a particular aspect of a portfolio, or why a particular mechanic has been included in the structure. On the other hand, with banks, Ball says the firm is well positioned as an insurance broker to understand their needs and, uniquely for an insurance broker, it has in-house the commercial, structuring and legal expertise necessary to take an SRT deal from start to finish - including any preliminary feasibility exercises looking at the deal’s efficiency.

For SRTs to reach their potential, it’s imperative that more investors properly understand the risk and believe it’s worth entering the space, according to Petkov. “Texel can act as a conduit linking originating banks with insurance partners and speed up the time to market. The aim is to create long-term partnerships, whereby banks can continue to recycle their assets and use SRT for balance sheet optimisation and credit risk mitigation,” he observes.

Petkov points to the pressing need for banks to recapitalise, given profitability issues, concentrated exposure to certain sectors and the roll-out of Basel 4 by January 2023. “The European banking sector has an estimated €120bn-€160bn hole in terms of capital that needs to be filled by then. And it’s unclear yet how much additional provisioning banks will have to make due to coronavirus stress.”

While Texel’s bespoke and structured solutions team have a strong focus on SRT transactions, Ball notes that they work across a range of structured credit and bespoke transactions that have an insurance element, where Petkov will add further value for their clients. These include transactions using insurance as an embedded credit enhancement - to repackage bank credit assets in a format suitable for the institutional investor market - and transactions focused on helping banks mitigate CCAR/peak exposures.

Corinne Smith