GTR and Willis Towers Watson gathered a group of industry leaders – both bankers and underwriters – to talk about the future direction of the political risk and trade credit insurance market and how insurers can expand the asset classes that they can underwrite.


Roundtable participants:

  • Matthew Beckett, director, insurance placement, loan capital markets, EMEA, SMBCE
  • Lise Kessler, global head of credit risk insurance, Crédit Agricole Corporate and Investment Bank
  • Gary Lowe, managing director, head, global credit insurance group, capital structuring and distribution group, Standard Chartered Bank
  • Christophe Meurier, CEO, financial solutions, Willis Towers Watson
  • Ian Nunn, underwriting manager, global political risk, credit and bond, AXA XL
  • Kade Spears, head of specialty, SCOR | Channel
  • Andrew van den Born, managing director, financial solutions, Willis Towers Watson (chair)
  • Sam Wilde, underwriting manager, Liberty Specialty Markets


van den Born: The credit insurance market has unquestionably proved itself to be extremely resilient. The claims data that was collated in conjunction with the major brokers last year categorically demonstrated that the product works; essentially it does what it says on the tin. As a market, we’ve been through the direct consultation process with the UK regulator and we have emerged on the other side on a much firmer footing than before. That said, our primary client base, banks, are arguably facing increasing competition from the shadow bankers, which I acknowledge provides opportunity from the client perspective, but on the other hand also causes some consternation from the banks’ perspective, in that the hedge funds and other NBFIs operate under a quite different regulatory environment, and don’t have the same sort of regulatory constraints as those imposed upon or faced by banks.

If the insurance market is to continue to stay relevant for our banking clients, we need to grow the types of products and asset classes that the market looks at, so that is something I would like to explore today. Is it possible that there are too many players in the market, stifling creativity and growth in terms of new asset classes or in terms of the direction of the market?

Lowe: The point on capacity is an interesting one, because as one of the biggest buyers in the market, we can normally get a lot of things done, but because there are so many insurers in pretty much the same space, there is, I think you’re quite right, a lack of resource, and a lack of prioritisation around other areas of the banking market which we would like to use the product for.

That is the key point: the market is fantastic at trade credit and loans and aviation, but there is this other world of credit which we as bankers are doing for our clients all day long in the capital markets, in the acquisition finance space; we are doing swaps and derivatives, and all of that would be attractive to insurers if we could invest the time and the resources into explaining it.

Wilde: As a banker recently turned insurer, I understand your perception. The bank I used to work for had three buckets of risk: cash lending, trade finance and derivatives. The first two are very competently covered by the insurance market but the third is far less developed. This is a constant conversation that we are having with some of our larger banking clients. Whilst capital market and derivative risks can be broadly similar in terms of the obligors and tenors it’s just not an area that many people have wanted to get in to. And there are some good reasons for that in terms of the nuances of the insurance cover and specialist knowledge required for these products. However, in lots of ways they are a much better form of risk than straight lending. So, if we want to grow our business, and we don’t want to grow by just doing larger lines or going down the credit curve, where do we go? The forms of credit risk that Gary mentions represent opportunities that have not yet been well developed, but I think you can see some green shoots of market interest. For those who can use insurance in these areas it opens up a very interesting world of opportunity.

Spears: To contrast with your approach, we are focused very much on what I would call tangible finance, and really I think that is because within our DNA as an insurance and reinsurance company, we are focused on a number of industries. Our approach is to try to provide better support to our core clients by re-looking at some of these more vanilla types of financing and trying to have a strong technical understanding of the underlying business. At the end of the day, we are very much focused on that tangible financing: roads, bridges, wind turbines, aircraft. For us, that’s going to be our focal point over the coming years.

Nunn: At AXA XL, our current underwriting strategy sits between these two approaches. We look to evolve our proposition with our key customers. And we certainly have evolved significantly our product offering in recent years to enable us to cover asset-backed lending which has been no small development: extending our policy tenors required for project finance, aviation finance and shipping financing to name a few areas. Whilst we monitor the performance of that development, we are also being approached on other, related structures for our key customers and as prudent insurers making sure that we all fully understand the risk dynamics we are committing ourselves to in these spaces.

Spears: One of the amazing things about this market is not that long ago we didn’t have insurers even talking about covering derivatives. And if we were talking about that, it was such a small pool of insurers, it was hard to get critical mass to provide that support to our core clients. The reality is that having more players has forced us to rethink our business, to look at if we have anything that would give us a natural advantage and expertise and use that to diversify our portfolio. So, the additional capacity is forcing us to progress in a number of areas.

Beckett: I think Kade is quite right in saying that a market does rely on there being critical mass to support the demand. A lot of innovation in our sector comes from the insurers understanding the needs of the banks. Looking at project finance five or six years ago, you’ve maybe got three or four players who can support beyond the double-digit tenor, and now that has grown. So, demand can be sustained by the insurer participants. On the derivatives side, whether that is there yet or not, I’m not sure, but what you don’t want to do – given that there are fewer providers for derivatives cover – is to exhaust an insurer’s limit that you as a bank can expose yourself to solely for the purpose of covering derivatives business. As the market develops, it will become a genuine market rather than a very small supply of a handful of participants. But it is definitely moving in the right direction.

Wilde: When we’re considering these niche product areas, whether it is swaps or securitisation type structures, or whether it is some of the specialist asset financing, it’s unreasonable to think that everyone will do everything. It feels like an inefficient way for the market to grow because everyone would need huge teams with lots of specific expertise. I don’t think there is anything wrong with having three underwriters with three different views about these topics around the table. I think it’s quite healthy that people play to their strengths, and if that can happen in a market environment where there is still enough capacity in any of those areas to provide the banks with what they need, then that is positive.

Lowe: That plays well into why we are using this product in the first place. It’s around managing portfolio exposures, optimising capital and ultimately allowing us to support our clients better. We do a lot of things with those clients in terms of products and credit exposures and sectors and industries. When we are asked for diversification and granularity across the risks that we show to the market, getting further into these other product areas is going to provide that.

I don’t consider having Togo versus Benin as diversification. I would say doing European acquisition financing which we did for the first time, or US capital call facilities which we also did a couple of years ago brought real diversification to the market in terms of the credit exposures that we were bringing. It’s a strategic question as to where you have expertise and to what extent there is management – and perhaps reinsurance – backing.

Spears: As an industry, we have gotten much better in terms of how we think about our business. We weathered the financial crisis and the commodity crisis, and so it’s critical to educate management and reinsurers, and work together with our clients, our brokers, to progress the market. I didn’t start in this industry that long ago, but some of the conversations we had back then and the things that we were doing, were incredibly limited, and I think it’s been a collaborative effort to try and progress the market.

Insurance reinsurance is a very simple game. Premiums have to be more than your incurred claims. Most insurance and reinsurance companies today are not expecting double-digit returns. They are targeting at most a return on capital of 8% above a risk-free rate. That is what we have to demonstrate as a business – that we can generate that year after year without extreme volatility. And I think we have done that and if we continue to do that, we will maintain management support and we will get more reinsurance support over time as well.

Kessler: One of the things we have noticed as a relatively new entrant into this market, because we only really started buying insurance on the dedicated insurance desk five years ago, is exactly that whole spirit of collaboration and partnership within insurers. The insurance market is really looking at a clear strategy of backing banks looking to use the product proactively and not defensively, and that there is no adverse selection, so the idea is for banks to up-tier and to use insurance to back bigger tickets for core clients rather than necessarily using it as a proper credit risk mitigation.

I would think that the track record that you have seen in terms of the key clients that you are supporting must go to help to build out your reinsurance scheme. I agree with Andrew that the claims data was really useful from the standpoint that it proved to regulators that the product does work, and it pays out. It was the ITFA survey that demonstrated the volumes of insurance that are being bought. I think they said this was around €87bn outstanding for the 21 banks that responded to the survey – extrapolated this indicates about €300-€350bn of insurance outstanding for the market. So, €2.5-3bn-worth of claims against that volume of insurance placed shows that it’s really a distribution tool used by banks to support activity, and not necessarily an insurance tool where it is being used just to mitigate unattractive risks.

Beckett: Different banks are buying for different reasons. Some to manage capital, some to mitigate counterparty exposure, country exposure, sector exposure, and so on. What people take as their primary benefit is not necessarily the primary benefit for another bank. That is where the market does differentiate in terms of buyers. That said, the primary benefit for one bank can still be enjoyed as a by-product for another bank.

Lowe: And not just banks. You need to remember that we are half the market, and the market also has corporate clients and trader clients, and amongst that spectrum of buyers there will be people who are using insurance purely to mitigate risks they don’t like, and whilst we spend a lot of time and effort and have a track record of showing that we are not in that category, others are. The reason I mention this is we have seen over a number of years and markets some insurers coming into the market with great fanfare, either starting up or acquiring teams, and others quietly leaving by the back door, which suggests that they have had very different experiences of this class.

So how do you think the outlook looks for the overall number of insurers and those differentiated strategies in terms of who is winning and who is losing?

Meurier: The first thing to notice is that for 20 or 25 years there has been huge specialisation in the insurance market. We are talking with three different insurers in this room, three different perspectives, three different strategies, but one common theme is that the underwriters are getting more specialised and increasingly able to understand the risk. We have more bankers coming to the market as well, which helps to educate the underwriters, and there are more crossovers from the banking industry to the insurance industry which cross fertilises all the different experiences.

To come back to your previous point on derivative capacity, we have 15 markets today that are able to do that. That’s enormous. Five years ago, we started with two markets, and then in five years, we have 15. Five years may seem quite long, but it is quite quick for the insurance industry!

To answer your question on whether there will be a change in the number of underwriters in the market in the next few years, it is difficult to answer. It is extremely interesting from an insurance point of view to come to this market, diversify, and then to lower the cost of capital at the insurance company level. But I think that those that don’t specialise, differentiate and don’t invest in good resources may exit the market as quickly as they have entered.

Spears: The reality is that today, credit and political risk insurance is still a relatively small part of the property and casualty industry. So, what is driving decisions at a senior level? It’s not around our business. Natural catastrophes, the frequency and severity of those events – that is what is driving the rating agencies and how they view insurance and reinsurance companies.

The one caveat that I would put on the growth in the market is that people underestimate the cash flows in this business. It takes a long time to generate free cash flow. Part of that is because of the amount of information and data we want to absorb today. When I started, we had a basic spreadsheet, we would take some financials and enter some information. Today, we have access to a host of different tools, scorecards, and external data sources. We are spending hundreds of thousands of pounds every year to access that, to interpret that, to better approach and better model our business. It takes a long time. The runway to generate free cash flow is much longer than people think in this business, and in the interim, we have to accept that we may have volatility, you may have some losses. It’s very difficult.


van den Born: We talk about growth of the market in terms of number of providers. But also, the market continues to grow in terms of those buying the product. Would having a standardised policy wording help attract more buyers into the market, and to what extent would a standardised wording be welcomed by the market? It’s worth noting that the lack of a standardised policy wording was raised as a potential issue by the PRA and it could be said that if we had a standardised document then the product would be less open to scrutiny from the regulators as a consequence. There have been various initiatives led by the likes of ITFA, the IACPM and the Loan Market Association (LMA) to discuss standardisation of the policy but thus far there has been a degree of pushback by some brokers and also some banks, amongst whom there perhaps remains a perception that their policy provides them with an element of competitive advantage over others.

Kessler: We need to be mindful that a lot of the transactions we are insuring are generated using documentation templates, but they are not all in the same format. So, although the LMA has done an amazing job of creating loan documentation templates, each transaction is customised, so there are always going to be terms that are specific to that. So, creating a one-size-fits-all insurance template may be slightly challenging in that regard. I suppose differentials between regulatory interpretation of the capital adequacy requirements means that different regions and different regional regulators might impose different requirements, which would also make it difficult for standardisation, but I do believe there are probably lots of common themes and common references. So perhaps there is room to standardise portions of it, but it may be a challenge to standardise all of it.

van den Born: To the extent that you could have a standardised document in much the same way as exists for the Bankers Association for Finance and Trade (BAFT) or the LMA form, but where similarly there remains optionality and everyone can still tinker around the edges, but at least there is a base market standard template.

Kessler: It depends on what you define as the edges.

Beckett: Our market is probably not the most efficient market at times, be it in the placement, the enquiries, the administration process, and executions, so anything that works around inefficiencies should really be taken on board.

van den Born: It would reduce the amount of potential execution risk for banks and all the toing and froing that we experience when negotiating policy wordings. Supposedly, template policy wordings are pre-agreed and yet there is still a lot of tinkering around the edges when it comes to placing the risk.

Beckett: Precisely. But on the flipside, obviously, a loan is a syndicated product. An insurance policy is not a syndicated product. It’s very much bespoke to the risk and the understanding that the bank has. You can argue that under an insurance policy there is perhaps a bit of intellectual property, it is proprietary, and what we don’t want to happen is ending up with a lowest common denominator.

Banks have built up reputations as responsible buyers and have established wordings in place with the market that reflect the nature of their business. Insurers wouldn’t necessarily be happy for another bank who is new to the market to enjoy the same wordings. That’s the insurer’s decision, however. I see the merit in having standardisation. There are certain elements where I think we should be encouraging as a market to embrace a degree of standardisation, to bring about better efficiencies. Whether it happens is a different matter.

Meurier: 20 years ago, when I started to negotiate the first policies for the bank I was working with at the time, we wanted to keep our wording for ourselves, because we were pioneers and we didn’t want the market to know about it. But then all the banks buying the product today are using the same lawyers. There is still proprietary wording for each client, but this can be said for trade syndications that are existing within the banks; the Loan Syndication and Trading Association (LSTA) is setting the framework, then there are the general rules, and on top of that you are able to put in as many special conditions as you want. I don’t think that most of the customers have favourable proprietary wording on the legal side. Most of them are on the commercial side, so it should be handled separately, but having a single framework would be very beneficial. The brokers out here are very happy to say that they have negotiated the best wording for their customers, but they have in effect been wasting a lot of their time and those of the insurance companies – for what added value? Brokers are here to add value! We are here to find capacity and explain to the underwriters, not just negotiate wordings that we have already done for two or three other customers and we are not able to share because of confidentiality issues. There is a big inefficiency here which can be improved if we deal with it as a market.

Spears: We work with most major financial institutions who are buying the product. 95% of the wordings are exactly the same. 80% of our time, effort, energy and money is spent negotiating the 5%. Imagine if we could redeploy that into developing new capabilities, new models, working with you as clients to understand niche areas. That would be a better use of our time.

The second thing is that having spoken to a number of investors who are looking at coming into the market, their biggest concern is they are seeing 10 different wordings which are all slightly different, and they are trying to get their head around why there is not a standardised wording. Can they get comfortable with it? I think we can standardise 95% of what we do. We will negotiate the 5% with our core clients. But we have to take that step. It’s too inefficient and it wastes too much time.

Lowe: I am a big proponent and fan and advocate of standardised wording. I think we’ve got a great wording, but I’m also realistic enough to know that it looks exactly like Lise’s, for example, and Matt’s as well, when you look under the bonnet. Standardised wording would bring gravitas and standing to the industry. It would bring it slightly out of the shadows, which would help when trying to explain ourselves to a regulator, to investors, to our own credit officers. I think it would give us confidence and comfort that we haven’t missed anything, either.

We routinely review our wordings with the benefit of hindsight and the benefit of experience and think, actually, this little piece here should have been different. And it wasn’t because anyone was trying to get an advantage over the other party, it’s just because we’ve been building this thing up piecemeal like a Lego model over the years, and I don’t think it achieves anything. I have heard some insurers speak at conferences and say, we want to give preferential treatment to our favoured clients, and that sounds great, but then it got me really worried because I thought, if everybody wants to say that this product is a capital requirements regulation (CRR)-compliant guarantee equivalent product that will pay on claims, then what are you hiding from me? What’s in the small print that is preferential to one client over the other?

Spears: We are in the ‘promise to pay’ business. We don’t collateralise any of our policies. We give you a promise that we are going to pay. So, standardising the wordings could help in getting people comfortable with that promise. The other thing that we have to do better in the industry, and we have just started, is collect better information and data around what we are doing. It is critical that we have that information and it’s clear, and it’s available in the public domain.

Kessler: If you look at the genesis of the LMA, it was originally to facilitate secondary loan market trading, and what they found right off the bat was that there was no standardised documentation whatsoever. So that led to the documentation which allowed them to facilitate trading, and then, of course, they recognised that they needed to demonstrate publicly what activity was being done to justify all that effort that was being put into it. And one of the interesting things we find about the insurance policies is the confidentiality clause. So, if we are meant to be building some kind of tracking and monitoring system to demonstrate just how much insurance is being placed, to demonstrate that it is being actively used, then restricting the confidentiality excessively doesn’t necessarily facilitate that. In LMA loan documentation, the confidentiality wording has been widened out over time to allow for other sorts of disclosure in relation to league table providers and the rest. So, the confidentiality clause in insurance policies might be an easy, low hanging fruit place to start.


van den Born: Arguably the market has hidden behind a veil of confidentiality in terms of providing the data. It was only last year that the market got together to provide on an anonymised basis the data that the market really needed to justify that the product worked.

There are two other topics I would like to pick up on. The first is the ability of the market to cover portfolios; we have witnessed recently a growing interest in insuring a portfolio of term loans or revolving credit facilities (RCFs), for example, or portfolios made up of various different asset classes. And the other one concerns the ability for banks to attract liquidity from third party investors, be they pensions funds or the like, and bring these parties into the equation. There have been a number of transactions recently whereby banks have introduced investors into their transactions and allowed them to benefit from the insurance – with, in some cases, insurers providing them with 100% indemnity.

Nunn: On the topic of funding from institutional investors, for us, the drivers behind such involvement are key: particularly what beneficial role such funding can provide to the transaction. Typically, such alternative lending structures have gone down the route of development impact financing and transactions that can improve the risk profile of the sovereigns that these loans have focussed on. At AXA XL this is an area we have looked at, in part because institutional investor funding can reduce the overall borrowing costs of the targeted sovereigns, as well as improve the repayment profiles of its borrowings, thereby potentially improving the risk profile of a transaction. If the development nature of the funding fits this strategy, then it is an area we have explored for multilaterals.


van den Born: What about banks originating those transactions and inviting investors in?

Nunn: At this stage, our focus has been working with multilaterals, partly because the nature of these transactions has had a developmental focus to them.

Lowe: That is something we spend a lot of time and effort on. From our perspective, what you are marrying is a bank’s origination capability, the correct interest in having the transaction happen in the first place, insurers that have risk appetite to do that behind the bank, and then, thirdly, institutional investors that have a passive investment mandate and particularly a lower cost of capital, a desire for long duration assets which match their own liabilities on their book, the asset management side of insurance companies who need to pay life insurance policy money, or are managing pension pots with long duration liabilities.

The deals that have been done so far were opportunistic and very specific, and they were really supporting the financial institutions in situations where otherwise there is no ability to get a transaction done.

The ability to do a bigger deal to support our clients in their overall financing objectives, to bring institutional and passive money into transactions, is something we want to do more of. It is certainly something that we want to see more support for, and we can be specific and granular on what makes it work for one insurer or another, but I hope to see progress on that because I don’t think it should be anything to be scared of. It is to the benefit of everyone to be able to scale this business in a way that brings in buyers or beneficiaries who would want those clients. These are good guys. They are not vulture funds. They are passive institutional investors who are there for the right reasons.

Spears: We have spent a lot of time looking at this. My career has very much been driven by working with banks, like the ones we have in this room today. As banks, you have originated the risk. You have structured the risk. You have largely held on to most of the risk, and my strategy has been very simple. We pick good banking clients, showing us a spread of risk. They are retaining most of the risk themselves. We are supporting it on a proportional basis, and it has been a very simple, straightforward strategy that seems to have worked. I think what you are talking about, where you are going to be the guiding hand and supporting this institutional capital coming into this space, I am very supportive of. What I worry about is there are a number of people trying to originate – I’d argue if they are structuring, and distributing – and so my concern with this is we are going from the bank era, where as underwriters we are largely validating what we are doing and then taking a proportional slice of it, to moving to a situation whereby we are effectively structuring, potentially, and taking 100% of the risk. And that is a very different ballgame. It will be interesting to see how insurers engage with this over time. From our point of view, we want to continue to support our core banking clients and make sure they are controlling how this is going, and there is clear structuring and risk retention involved.

Wilde: To pick up Gary’s point, there is no one-size-fits-all funded solution out there at the moment. There are some fundamental principles of insurance that are being challenged by these products and some structures are better at addressing them than others. I think how the insurance market will respond will very much depend upon which of these structures ends up being the dominant one. Of all the ideas, I think some of them are insurable, and some of them not.

Beckett: In terms of bringing funding in, it’s almost like the recycling of funded assets. I don’t think a transactor would look to sell down and transfer an insured asset. We are kind of the gatekeepers of the products, and we have to make sure that whatever we do is done in a responsible fashion, because it only takes one misplaced transaction where you can actually kill the business, so, we have a responsibility to the market to do things correctly. Again, are these programmes bank driven or insurer driven? We have seen in certain fields where the insurer brings a product to the market, to the banks, and says, ‘you can use this to help release funded assets and help your institutional clients’. So, again, insurers can have a proactive role in shaping the origination process and product development. But when things go wrong, and sometimes they do go wrong, who has the voting right? Who is steering the ship in that regard?

Lowe: We just need to be a little bit careful, because there are a few insurers out there on the margins who are coming to the banks with wrapped assets that they have somehow originated themselves, and saying, if you want to put this on your asset-backed security book, it’s in note form, and we look at it and think, maybe there’s a relative value play there, but it’s certainly not client led. It’s certainly not from the traditional market. But it certainly is disruptive, and like all tech plays, we need to respond to disruption in an appropriate and measured way, because these things are happening. We plan to be part of them, but we also expect them to be marginal to the wider business. We shouldn’t lose sight of what a fantastic job this market does for us in our core objectives that we spoke about earlier.

When we talk about portfolio solutions, we’ve really got two objectives here. One is scale, and the other is efficiency, and there are multiple approaches to that which hopefully cater for differentiated appetite. So, calling it excess of loss on a diversified portfolio sounds like reinsurance language, whereas calling it a senior mezzanine tranche for a securitisation sounds like financial engineering. Simply saying, here is the entire shipping book to prove that we are not giving you negative selection, perhaps plays better to a traditional direct insurer. But all of those ways of approaching it are just tools in our belt which allow us to solve those key challenges of capital and scale. Efficiency and scale are really what we are trying to achieve when we talk about these more esoteric portfolio solutions that are otherwise nothing different from what we do today; it’s just lots of single name situation policies put together and potentially sliced a different way but achieving the same outcome.

Beckett: That depends on how joined up you are. You have asset owners, you have credit portfolio management desks, who is assuming the cost? Is it the asset owner? Generally speaking, the more joined-up an institution is, the more likely it is to be able to achieve the scalability on managing portfolios. We for one are looking at these types of things, and it is something that could be replicable across the regions. Again, it will create efficiency – not just for banks, but for the insurers also. You’re taking a bucket of deals which can be recycled, can be topped up, and a lot of the costs which are typically incurred with the administration of single deals are removed. There are a lot of positives and upsides but, again, it depends on the critical mass to support those portfolios. Can the primary market support that alone, or do we have to look into alternative routes?

Wilde: I think you are right. This is an area in which the insurance market is in its infancy. Thinking about these tranched credit portfolios, from our perspective it seems like the natural progression of the way the market has evolved. Originally it was mainly individual single risk policies, then reverse engineered portfolios that were really just baskets of individual names, then banks started to show whole books of business from which insurers select a range of risks, and now portfolios in which we take a slice on an excess basis. It’s an important development because in a bank’s derisking toolbox they can sell a single asset, they can insure a single asset, they can sell a portfolio, but at the moment, the ability to insure a portfolio is lacking.

The difficulty again is what red lines does it cross from an insurance perspective? If I had to look at an anonymised portfolio, is that a prohibitive ideological challenge for an insurance company that has been used to saying, ‘these are my risks, I know exactly what my risks are’? There are ways in which the banking market can help the insurance market to get comfortable in terms of the types of assets you show to us and the sorts of portfolios. For example, the ones where you can disclose names would be the perfect place to start, and when three or four of those have been done, then I think there is a conversation around whether we could live with granular portfolios of anonymised assets.

Lowe: But the wider investment community has been doing this for decades. Funded investors from credit funds and hedge funds into first loss tranches of blind pools were oversubscribed when we issued those to the funding market. Blind pools are actually the best pools, because they are algorithmically driven, there is no negative selection, the people at the bank who put the names into the book don’t know the names in the book, so it is absolutely proven, together with a verification agent and proper legal opinions and proven documentation.

This is an attractive way of accessing portfolio diversify granular risk, which is well taken up in the market.

But the real opportunity for insurers in terms of baby steps is to have this senior mezzanine position which is in excess of the historical loss ratios, and therefore sits very much as an excess of loss style position, whilst getting material access to risks that you wouldn’t otherwise see, and at the right price. That is probably a key point here. Where do you want to deploy your capacity? Is it on 20 undrawn RCFs, or is it on a portfolio of equally uncorrelated transactions but in a position in the credit stack which is both safe and pays well? And you are right, there is an ideological, philosophical, intellectual set of gymnastics required to understand it, but it’s not that difficult, and it should be an area of interest to you and to the wider market.

van den Born: It is arguably up to reinsurers to work out how you are going to hang it.

Wilde: To your point, Gary, it’s true. There is nothing new about these structures; they have been around for 50 years. But what I think is quite an interesting question is whether the insurance market will get to the point of providing meaningful capacity for the senior mezzanine tranches before the equity investors do. There are already some first loss investors setting up these kind of mezzanine funds, so it may well be that we don’t get there fast enough to be the main player in that space.

Lowe: The window of opportunity as ever is always finite before something else comes along. So, it would be sad if we spent a great deal of time and effort developing a market only for that window to close just as we were ready to do it.

Meurier: It is true that when we are talking about portfolios of deals, the reinsurers have been quite active. This is more their mindset rather than the insurers’, but the insurers are slowly going there.

Now, if we are talking about blind pools, then we are indeed far away on the direct side to be able to do that, while the reinsurers are more ready since, in a way, they already do so. Maybe within the next five years, insurers should be ready to do that. Your question on if it will still be relevant for the market or not is quite interesting. To me the answer is yes, because there is still an interesting capital arbitrage between the two industries, and the cost of capital of the insurance is still lower, and should remain lower in the future thanks to the diversification of the insurers’ risks and because most of the current reinsurance techniques that are used by the insurance companies are not easily accessible to the other players.

Nunn: It’s certainly a case of to what degree you are prepared partially to give your pen away, so to speak. Reinsurers would tend to be more comfortable with this approach. The question then becomes, can you blend an insurance or reinsurance underwriting approach in order to provide the customer with the best solution? That’s the conversation being had in many of our institutions at the moment.