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.