Collateral provider agrees a major opening deal with ING

Karson Management (Bermuda) has launched a specialist collateral provider, whose first act was to complete a $825 million transaction for ING Insurance.

The provider, Karson Capital Limited, was set up to supply collateral for international re/insurance companies, Lloyd’s Corporate Members and other corporations to support their current and future regulatory and credit security requirements.

Derrell Hendrix, chief executive officer of Karson Management, said: “The service will provide the global insurance markets with an efficient, scalable and price-competitive source of short- and long-term collateral that will compete favourably with conventional alternatives, where supply and pricing have been all over the map. It will also avoid the inadvertent investment risks and breathtaking complexity that characterised previous securitisation efforts in the US life market.”

The substantial opening deal with ING Bank saw eligible Regulation XXX collateral for a large block of life insurance business ceded by Security Life of Denver Insurance Company to Security Life of Denver International Limited through a wholly owned special purpose subsidiary of Karson Capital.

According to Stephen Lawrence, a principal in Karson Management: “The successful launch of the programme was considerably aided by ING Bank [London branch], whose insurance market expertise was invaluable in bringing such an innovative programme to fruition.”

The type of collateral issued is a new and innovative financial guarantee in the form of fully secured demand notes, and will function as a practical alternative to letters of credit and individually funded trusts. It has been designed to enable the ceding company to take credit for reinsurance or solvency relief under US insurance laws and UK insurance regulations, and will be fully backed by a portfolio of high-quality assets.

Richard Black, managing director of Karson Capital in Bermuda, believes the company will provide opportunities to both the P&C reinsurance and insurance-linked security markets, as well as the life sector.

He said: “Our flexible platform can provide new and efficient sources of collateral to the market when traditional capacity is unavailable or uneconomic, or does not allow investment flexibility.”