Aspen has announced the completion of an innovative insurance policy which has characteristics similar to a credit derivative. The policy is for up to $420m of reinsurance receivables, in a transaction with Deutsche Bank, an AA rated investment bank.
The insurance policy will protect a portfolio of Aspen's reinsurance contracts against the risk of default because of a reinsurer's inability to pay.
“At Aspen we have embraced the convergence between the traditional reinsurance market and the capabilities and depth offered by the capital markets. The ground-breaking insurance policy we announced today extracts from the best of both markets,” said Chris O'Kane, chief executive officer of Aspen.
The five year policy provides cover for current and future receivables under existing reinsurance policies and reinsurance policies taken out during the policy term. The policy is triggered by certain non-standard credit events designed to isolate the specific nature of counterparty risk in the reinsurance market. Policy payments are made on the basis of a customised methodology developed between Aspen and Deutsche Bank.
