Insurance Risk – Contingent Capital Options During 2020

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#ActiveAllocator Research – The Wall Street Journal today Thursday July 9, has two interesting articles on insurance. “KKR Buys Insurer to Build Asset Pool” announcing intent to acquire Global Atlantic Financial Group for $4.4 Billion and ” Allstate Buys Rival (NGH) for $4 Billion”. Clearly we are seeing some M&A activity in this sector.

Insurers are exposed to event risk from a variety of causes: Natural Catastrophes, Investment Market Disruptions and of course now, Pandemic – death claims, morbidity losses, investment losses, operations risk. Historically, many insurance firms have responded to such events by raising equity capital after the event – at depressed prices. None anticipated the specific triggering event, but all recognized the potential for tail events. I observe that all were required to raise capital at highly depressed values in order to survive, to maintain ratings or even solvency.

We recommend Contingent Capital options. Contingent Capital provides guaranteed access to capital at a pre-determined price when most needed. This can supplement available capacity, enhance financial flexibility and diversify capital sources. To catalyze creative thought, we explain its potential applicability along with ramifications in this visual.


Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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