Risk Transfer and Insurance Securitization

The convergence of the financial markets continues to be a key driver of the evolution of the insurance industry, with the capital markets playing an ever increasing role as a source of capacity for the financing and assumption of insurance-related risk. Risk, in its various forms, has become a ubiquitous commodity in the financial markets, with insurance risk being viewed as a new investment opportunity by the various types of institutional investors. Sidley lawyers have been at the forefront in structuring innovative and novel transactions and products, such as insurance-linked securities, that shift insurance risks to the capital markets and allow capital market investors to participate in such risks as a form of investment.

In the area of property and casualty alternative risk transfer, Sidley is recognized as the market leader in catastrophe bonds, side cars and structured collateralized retrocessional arrangements. Within the life insurance industry, we have been a leader in redundant reserve (XXX and AXXX), embedded value, closed-block and adverse/catastrophic mortality securitizations. In addition, we have particular knowledge and experience in the use of derivatives and various transformer structures as alternatives means of transferring insurance risk. Given the vast resources of our firm in the areas of securitization, structured finance, securities law, derivatives and insurance regulation, Sidley is positioned to assist our clients in the structuring of these complex transactions and products.

The convergence of the insurance industry with the financial markets has contributed to the use of insurance products in traditional capital markets transactions. It is now common for insurance companies to utilize insurance products to participate in transactions and assume risks that, until recently, had been the exclusive domain of investment banks, commercial banks, merchant banks and venture capitalists. Our clients are financing acquisitions and rollups (insuring debt used to make an acquisition ranging in risk from senior secured obligations to synthetic equity). They are guaranteeing the accuracy of representations and warranties given by sellers of assets and businesses. They are taking on the risk imbedded in derivatives. They are guaranteeing the residual value of assets, including assets as mundane as the residual value of automobiles and as unusual as the liquidation value of professional hockey teams. They are providing enhancements which facilitate securitization of diverse asset types. Sidley has been present at each step of this evolution of the use of insurance, and the broad capabilities of the lawyers in the various practice areas make Sidley qualified to assist our clients in this area.