The Lottoland Group, a young but fast-growing Gibraltar licensed online lottery provider, has renewed its collateralized jackpot winnings insurance protection with the help again of inea GmbH, a German firm that structures and offers investment opportunities including insurance- or reinsurance-linked securities (ILS).
inea structured and placed the first lottery winning risk collateralized reinsurance transaction in 2015 for Lottoland, to provide it with a source of insurance protection provided by capital market and ILS fund investors.
Once again inea has structured and placed this renewal deal, and the transaction has been effected in the domicile of Gibraltar again, making it the second ILS transaction to be completed in the domicile.
The renewal collateralized reinsurance transaction that inea structured is very similar to the 2015 deal, providing Lottoland with €100m of annual coverage, including reinstatements. The deal has been structured into four distinct layers, with differing levels of winnings required to cause attachment of each and providing differing levels of return for investors.
The layered approach means that the transaction covers an expected loss range within the reinsurance programme from 3% up to a much riskier 12%. The four layers of the collateralized reinsurance deal, provide different levels of risk and return to suit ILS and capital market investors, with different attachment probabilities and rate-on-line available for each of the four layers.
inea said that all of the investors involved in the 2015 transaction had renewed, with some electing to upsize their allocations to the lottery jackpot winnings risk deal.
The 2015 transaction had been a two-year deal, but a renewal had been triggered early as Lottoland has been growing so quickly. With the lottery provider growing rapidly its needs for insurance coverage are increasing and it could perhaps be foreseen that a catastrophe bond could be structured to suit its needs in future.
Collateralized reinsurance was once again chosen for this Lottoland renewal as it is considered more flexible for a smaller transaction. The deal features an indemnity trigger, so would payout based on lottery jackpots won in any specific covered lottery games offered by Lottoland.
For Lottoland the protection is for both large jackpot winnings and losses due to some of the smaller prizes in the lotteries, while by covering multiple lotteries it means that the deal provides greater diversification within the transaction risk pool for the ILS investors.
Nigel Birrell, CEO of Lottoland, commented on the deal; “Our reputation stands or falls as reliably and quickly as we can pay out. Therefore we are very pleased that we were able to secure again our existing ILS contracts with our investors for two more years.
“For a company with our growth momentum that is the most cost-effective and best way to insure high jackpot winnings and pay out quickly.”
Lottoland’s first ILS transaction from 2015 demonstrated its worth twice, with investors called on to pay some of its jackpot payments. The transaction paid out on a EUR14m winning in February 2016, and it also transpires a further EUR22m in May 2016.
The collateralized reinsurance renewal was placed using Gibraltar based protected cell company Euroguard Insurance PCC Limited, Artemis understands.
As ILS investors continue to seek to grow their allocations to insurance and reinsurance risk, diversifying opportunities are important and the lottery winning risk transactions are a sought after chance to add a non-natural catastrophe exposure to their portfolios.