Winner: The Texel Group

The Texel Group has won the inaugural Broker of the Year category in this year’s SCI Capital Relief Trades Awards. Texel is a specialist credit and political risk insurance broker with offices in the UK, Europe, Asia and the US and a dedicated focus on arranging non-payment insurance (or credit insurance) for some of the world’s largest European, US and global banking groups, financial institutions, corporates and trading companies. The firm has a history of setting precedents with the insurance market since it was founded 25 years ago, applying credit insurance to new and emerging asset classes and via innovative risk transfer structures, including some of the first-ever applications of unfunded risk transfer to synthetic securitisations.

As a broker, Texel was an early mover in the synthetic securitisation space, hiring Alan Ball as head of its structured and bespoke solutions (SBS) team in 2018 with a specialist focus on SRT transactions. “Texel is extremely client-focused and outcome-driven and this means we often look to innovate or develop the insurance market to meet the evolving needs of our clients,” explains Ball.

He continues: “The first synthetic securitisations were executed on a bilateral basis between a single bank and a single (re)insurer. We knew, however, that for our clients to fully realise the benefits of the insurance market in this area, there would need to be an actual ‘market’ - with multiple participants who could ultimately offer our clients the benefits of scale, pricing competition, counterparty diversification and diversity of risk appetite. Our goal was therefore to develop such a market.”

In developing the market, Texel has achieved a number of milestones, including:

• closing the first-ever synthetic securitisation to be syndicated among multiple insurers;

• significantly growing the market capacity by introducing more than five major global insurers to their first-ever SRT transactions (which have since gone on to support multiple transactions in the SRT space); and

• developing bespoke programme documentation for their clients to help streamline the execution process with (re)insurers.

Some new or less experienced users of credit insurance may not be familiar with how an insurance broker fits into the transaction process for SRT. “The first point to note is that we, as a broker, act in the best interests of our banking clients – our sole goal is to achieve the best possible outcomes for them in the immediate and longer term – we are not tied to particular funders or investors and do not act on behalf of the insurers,” Ball explains.

In relation to how a broker adds value, Ball remarks: “Fundamentally, a good broker should bridge any gaps between insurers and clients to get their clients’ deal over the line, ideally leaving all sides with a positive transaction experience that they want to build on. In order to achieve this, it’s critical to understand the perspectives and needs of both clients and insurers from the outset. Effective execution of synthetic securitisations using unfunded risk transfer therefore requires an understanding of the market practices, dynamics and technical requirements applicable to both banks and insurers alike – understanding just one side of this equation simply doesn’t work.”

Texel attributes its innovations and successes to having such cross-sectoral knowledge, with much of its experienced team having significant transactional and structuring experience from previous careers as underwriters, lawyers and bankers. “It’s important for clients looking to deploy insurance on SRT transactions to appreciate that the credit insurance market has over two decades of established market practice and is a relationship-driven (as opposed to transactional) market. It’s also an incredibly diverse market with diverse institutions, each with their own risk appetites, perspectives and processes,” Ball notes.

He continues: “As a broker, it’s our job to know this market intimately, so that we are able to advise our clients on how best to achieve their desired outcomes – depending on the particular requirements of a client or transaction, we will potentially advise on different courses of action with different insurers. For some transactions, we’ll advise a broadly syndicated placement; for others, we’ll suggest a targeted focus on a few counterparties who we know, for example, have a deep understanding of a specialist asset class or geography from having worked with them over the last two decades.”

This market knowledge has translated into concrete benefits for Texel’s clients, with Texel able to secure highly competitive pricing, which can often represent a material discount to that offered directly to clients by some (re)insurers. Texel has also scaled clients’ SRT programmes by introducing multiple new counterparties and arranging cover for specialist asset classes, such as project finance and lending types specific to local European or international markets – going so far as to bring in new market entrants to support a client’s transaction.

“In addition to knowledge and experience, effective transaction and process management is critical – especially where parties are coming from different markets, such as the SRT market and (re)insurance market. We understand the market practices and expectations of both and are able to pre-empt gaps, obstacles or roadblocks in the transaction process ahead of time and plan to avoid last-minute fire drills or wasted costs and efforts. Where the transaction is particularly complex or niche, we’ll put together detailed submissions, which allow insurers to quickly read into a client’s transaction, navigate the relevant documents and get the key issues on the table - which may be different to those focused on by a funded investor,” Ball comments.

Notably, the firm acted as broker to Credit Suisse in arranging cover for its Elvetia CRT programme earlier this year in a transaction which referenced a CHF3.5bn blind portfolio of SME and corporate loans. The Texel team worked closely with Credit Suisse several years ago to develop the structure and suite of documents used for insurance cover of unfunded tranches of the programme.

Texel’s reputation precedes itself in the market and the SBS team is well regarded by originators and professional advisers in the SRT market, with Texel receiving referrals from these groups and even from insurers themselves, where they may be working directly with a client but feels the transaction could benefit from Texel’s input in terms of process management, input on the deal documents or scaling the client’s programme more generally.

With interest growing in this space over the last five years, the firm hopes to continue to lead the market with its technical expertise without foregoing its roots as an insurance broker. Ball says: “We want to remain relevant by having market-leading expertise, but not forgetting our roots as an insurance broker who knows and has a good understanding of the needs and the requirements of the underwriters, so we can appropriately guide our clients. It is short-sighted to judge the success of a broker by whether they eventually managed to get an individual transaction over the line – this is obviously critical – but we like to act in the longer-term interests of our clients, constantly improving their experience and the value they get from transacting with the (re)insurance market.”

Going forward, Texel remains ambitious for the insurance market generally and has begun working with a number of first-time issuers in the SRT space, in conjunction with more traditional arrangers and advisers. “It’s rewarding to see how unfunded risk transfer in this space has gone from being a marginal, more hypothetical idea five or six years ago to being a regular part of the conversation in SRT. We are hugely excited that both Texel and the insurance market have gained sufficient credibility for experienced advisers in this space to look at involving us in their work with several first-time and potential issuers, looking to create programmes where unfunded protection is an option from the outset rather than an afterthought,” notes Ball.

He concludes: “We want to develop a bigger footprint with the client base and continue to give all of our clients a really positive experience of the insurance market. But in order to do that, we think it’s important that they work with intermediaries who are technically competent, have real world transaction management experience, but also have a solid understanding of both (re)insurance and SRT markets as well.”

Honourable mention: Aon
In recognition of the firm continuing to build on its first-mover advantage as the first insurance broker to identify the CRT opportunity for reinsurers, its ongoing advocacy for the CRT business generally and for having completed 17 transactions with aggregate risk transfer of US$12bn during the awards period.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.

*For more on the outlook for global risk transfer activity, join our complimentary webinaron 2 November at 2pm GMT. Leading CRT practitioners from Arch MI, ArrowMark Partners, Credit Benchmark and Guy Carpenter will discuss current trends in light of today’s macroeconomic headwinds. Click here to register.*