Special purpose insurer
A dedicated company that issues insurance-linked securities and holds the proceeds as collateral for a reinsurance contract.
Solvency II Directive, Article 211: a special purpose vehicle can only be set up in the EU with an authorization, and it must be fully funded, meaning it holds at all times enough to pay everything it may owe. The insurance securitization vehicle, SPV or SPI depending on the jurisdiction, is a company created for a single transaction. It writes a reinsurance contract with the cedant, issues notes to investors and places the proceeds in a collateral account invested in very low-risk assets. If the trigger is hit, the collateral pays the cedant; otherwise it repays investors at maturity. A traditional reinsurer promises to pay out of capital exposed elsewhere; the vehicle holds up front what it owes, and the cedant carries no credit risk on it. Hence its success on extreme perils, where the fear is market failure at the time of the loss. It has no staff and no other business, and its legal isolation from the sponsor is what makes it hold.
In 2026, a European cedant sets up a vehicle that issues 180 million euros of three-year notes backed by a windstorm layer. The vehicle invests the proceeds in government money market funds at 2.9 percent and passes that yield to investors on top of the 5.4 percent risk spread. No triggering event occurs over the period: the vehicle repays the 180 million at maturity and is then wound up.
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