CAPITAL
Capital
IAC™ Insurers are statutorily required to maintain assets, held by government approved custodian(s), sufficient to timely pay a total loss on all Policies issued.
Premiums and capital/surplus are statutorily reserved under the Investors Guaranty Fund, Ltd. (Policyholder Reserves) Act, 1991 (the “IGF Act”), special legislation which governs the operations of the IAC™ Insurers. Each Policy issued by an IAC Insurer™ is fully backed by eligible government obligations to provide assurance of timely payment. The unique capital structure of the IAC™ Insurers enables capital market participants to provide the high level of capital support to Policies issued by IAC™ Insurers and to participate in Risk-Linked Obligations™ supporting specific Policies or groups of Policies.
Capital support activities have been organised into four methods:
Syndicates, Risk-Linked Participations, Risk-Linked Obligations™ and Policy Collateral.
These methods employ four categories of funding instruments:
Risk-Linked Obligations™, Flex GIA™, Policy Collateral, Certificates of Residual Interest.
Capital Structure
Syndicates
Each IAC Insurer™ recognises “syndicates” which provide capital/surplus support for specific Policies. Each “syndicate” is administered through an “ IAC™ Syndicate Advisor” in coordination with each applicable IAC Insurer™, allocating capital/support to specific Policies. An IAC™ Syndicate Advisor maintains relationships with accredited IAC™ Underwriters and IAC™ Underwriting Advisors, making dedicated capital/surplus available to designated IAC™ Underwriting Advisors for their underwriting programs. It may also participate on an ad hoc basis in specific Policies underwritten through accredited IAC™ Underwriting Advisors.
A “syndicate” may act as a warehouse facility, acquiring participations in underwriting programs and/or ad hoc risks, then repackaging same into various forms of risk-linked obligations which participate in designated types of risks assumed through the “syndicate”. Alternatively, the “syndicate” may simply acquire its capital in a manner similar to a portfolio fund.
Each “syndicate” establishes diversification guidelines including type of risks supported and size of specific Policy risks. Investors in these risk-linked obligations participate in the risk and reward of the “syndicate” ‘s risk management activities, with the “Syndicate Advisor” and applicable IAC Insurer™(s) participating in a portion of profitable premium underwriting. A benefit of the “syndicate” structure is that accredited IAC™ Underwriting Advisors have access to dedicated capital/surplus enabling rapid binding commitments on smaller risk exposures.
Risk-Linked Participation
An accredited IAC™ Underwriting Advisor may “preview” specific risk exposures for participation by accredited funding participants. These participations are available to accredited investment funds. Under this structure, the IAC Insurer™ may make available for participation by accredited capital participants, interests in a portion of a Policy, a Policy, a group of Policies or interests in a portion of a group of Policies. The specific details of risk and investment return participation are set forth in an electronic terms sheet, where multiple accredited investors may commit for a defined portion of the total risk.
It is envisioned that the Risk-Linked Participation approach will provide accredited IAC™ Underwriting Advisors quick access to an increasing base of accredited global investors. Each proposed Risk-Linked Participation is to be available for review by this group, who is provided a limited amount of time to commit to a participation in a specific risk exposure.
Risk-Linked Products
Capital/surplus for certain types of risk exposures including those with large limits or coverage for multi-year periods may be more appropriately sourced from global capital markets through issuance of risk-linked debt and equity securities through traditional securities placement firms. This approach is generally more time consuming and costly than other methods.
Policy Collateral
For certain types of Policies, policyholders, their affiliates or third parties may provide collateral, in excess of premium related to such Policy(ies). Policy Collateral is protected under the IGF Act and used to support specific Policy(ies). This approach is useful in proprietary financial guaranty insurance transactions.
Capital Funding Instruments
Risk-Linked Obligations™
Each IAC Insurer™ is able to issue standard form debt and equity securities and digital assets linked to specific Policy(ies), groupings of Policies, and/or specific risk exposures related to a Policy or groupings of Policies. These securities may be issued to accredited investment funds or placed within special purpose issuers who may issue digital assets, debt and/or equity instruments which participate in the Risk-Linked Obligations™.
Flex GIA™
An IGA IAC Insurer™ may issue a high-quality, floating rate guaranteed investment agreement, with long-dated, low duration, medium-term features. Holders of these instruments may benefit from relatively higher interest crediting rates, through an IGA IAC Insurer™’s investment in specific Risk-Linked Obligations™.
Policy Collateral
Standard form Policy Collateral Agreements provide the contractual framework when collateral is provided to support specific Policy(ies), subject to the statutory requirements of the IGF Act.
Certificates of Residual Interest
Subject to the statutory requirements of the IGF Act, an IAC Insurer™ may issue Certificates of Residual Interest with respect to specific Policy and capital transactions. Accredited IAC™ Underwriting Advisors, IAC™ Syndicate Advisors, IAC™ Consulting Advisors, other professional participants and the IAC™ Insurers participate in transaction profits through these special purpose instruments.