EDGE provides alternative capital source to (re)insurers
French investment bank Société Générale Corporate & Investment Banking (SocGen CIB) has launched Event-Driven Guaranteed Equity (EDGE), a contingent capital facility for insurers and reinsurers. The facility will provide an alternative source of risk capital to the traditional reinsurance and retrocession markets.
EDGE provides multi-year protection by subscribing to new shares issued by the protected company if contractually-defined events occur. According to SocGen CIB, EDGE is both complementary and an alternative to existing forms of risk transfer. The facility offers fast set-up, reduced basis risk, financial flexibility and no equity dilution of the protected company until the trigger events occur, the bank said.
SocGen CIB added that a major rating agency had recognised EDGE as a structure that reduces capital requirements up front, therefore having a beneficial rating impact.
The news closely follows the announcement on 10 September that French reinsurer SCOR had secured a three-year €150m contingent capital facility through Swiss bank UBS. The capital is available in two separate tranches of €75m.
Under the arrangement, SCOR will issue new shares to UBS if SCOR’s aggregate losses from natural catastrophes hit certain pre-defined thresholds over the three-year period.