Gibraltar’s first ILS is a €100m lottery and gambling risk bond, completed on Monday 13.
Lottoland, an expanding Gibraltar licensed gambling company that offers online lotteries, placed the ILS deal.
As well as marketing itself as a hub for ILS, captive insurance and hedge funds, the British overseas territory is also known as a base for online gambling and casino companies.
Twelve months ago Gibraltar’s government announced its ambitions to establish itself as a new ILS jurisdiction within the European Union.
The Lottoland ILS, which has a two-year term, was placed via Euroguard Insurance Company PCC Limited, a bond issuance vehicle based in Gibraltar.
Euroguard was established in 1996 and is part of MMI Holdings Limited, a South African exchange listed financial services firm.
The deal was structured by Germany-based inea GmbH, which has termed it the Fortuna Transaction.
“I am delighted that Gibraltar has completed its first ILS transaction in record time just over a year after setting out our plans for insurance linked securities in Gibraltar. Mike Ashton and the team at Gibraltar Finance have worked extremely hard to make this happen and I am pleased that our efforts in this new area of business are paying off,” said Albert Isola MP, minister for financial services for the Government of Gibraltar.
“It is particularly gratifying that this transaction involves businesses from both of Gibraltar's vibrant and growing insurance and gaming sectors. These are important sectors in our community providing valuable employment and other opportunities for our economy.
“Our ILS journey has been swift and has been helped enormously by the formation of the ILS Working Group with Mr Andre Perez last year in which a number of the largest ILS players participated.
“Finally, I would like to thank both Lottoland and inea GmbH for choosing to structure the transaction here and for their confidence in Gibraltar as the place to break new ground for the ILS sector within the European Union,” he added.
The deal consists of four layers, with an expected loss range running from 2.5% to 12.5%, using an indemnity trigger and offering Lottoland protection against single big jackpots and against a sequence of smaller prizes. The cover is "per-draw", meaning that a small premium is paid initially with top-ups for each draw, depending on the number of draws and the number of entries. The coupon ranges from 5% to more than 15%, depending on the layer chosen by the investor.
Milliman Inc provided the risk modelling.
An example of how lottery winnings can go "against the odds" was shown in the March 2005 Powerball draw. The $13.8m jackpot was won, a not unusual event, but there were an unusually high number of "near-misses" (110) – which paid either $100,000 or $500,000. It transpired that the numbers 22, 28, 32, 33 and 39 had appeared in a fortune cookie message printed by a New York vendor.