Interview: Robert Quinn, Wells Fargo Collateral Trust


22.10.12 MONDAY


Trust in a collateral alternative


Many reinsurers and ILS funds are getting near zero returns on the cash they deposit in trusts. Robert Quinn of Wells Fargo Collateral Trust argues that this does not have to be the case and better returns are possible.


T


hanks to the economic gloom and low- yield environment, many


reinsurers


- cent rate of return on money deposited into insurance and ILS trusts. But that need not be the case, says Robert Quinn, senior vice president at Wells Fargo Collateral Trust, who says that there is a better alternative. Quinn argues that the investment options


offered to conservative investors by most trustees are limited to either money market  and three month treasuries, which can re- turn around five basis points. “These are the investments of choice because they are safe, liquid and predictable in value,” he says. “For many, principal risk with trust assets is simply not an option.” But the need to keep assets safe should


not prevent an increased rate of return. Wells Fargo offers a cash deposit vehicle that is interest-bearing and is bankruptcy- proof. The money sits as “cash.”


It is not


invested, and therefore, there are no market value fluctuations and there is no principal risk. Quinn notes that, over the past five years, Wells Fargo’s deposit product has out- performed one and three month treasuries        realised by Wells Fargo clients without any additional risk, argues Quinn. “Thirty five basis points on a perfectly


safe deposit account is a meaningful in- crease, especially when the amount involved becomes sufficiently large,” he says. “For         our deposit account over the last five years         have if they used short term treasuries.” Wells Fargo offers a number of different


trust products to clients, which it advocates as alternatives to the use of letters of credit (LOCs). Its bespoke trust products include a Reinsurance trust, an Insurance-Linked Securities (ILS) trust, a Captive trust, a De- ductible trust and a Surety trust.


8


Quinn says that in recent years his busi- ness unit has seen a big jump in enquiries from reinsurers and ILS funds that fully collateralised their deals. Both types of risk transfer lend themselves well to the use of trusts.


“A client that placed $1 billion in our deposit account over the last five years has made, on average, $3.5 million per year more, $17.5 million in total, than it would have if they used short term treasuries.”


“The use of ILS as an alternative to set-


Robert Quinn of Wells Fargo Collateral Trust Quinn advocates the use of trusts over let-


ters of credit for a number of reasons. Setting up a trust is usually less expensive yet treated on a par with LOCs by cedents. It can also be quicker to establish and, unlike LOCs, does not need to be renewed every year.


“35 basis points on a perfectly safe deposit account is a meaningful increase, especially when the amount involved becomes sufficiently large.”


Another key advantage, especially perti-


nent given the kind of returns discussed pre- viously, is that income from the trust is the property of the depositor and assets in the trust generally remain on the books of the depositor. Further, the draw-down charac- teristics are similar to that of an LOC.


| INTELLIGENT INSURER —BADEN-BADEN TODAY | Monday October 22 2012


ting up reinsurance companies is a very clev- er strategy and seems to be a very successful one,” says Quinn. “We’re very pleased to be the trustee for a great number of the ILS funds that are up and running.” Wells Fargo is also seeing rising demand


from start-up insurers and reinsurers. These companies are deciding between LOCs and trusts, but Quinn says they usually opt for trusts once the facts are explained to them. Often, people involved have used trusts with their previous employers. “Some start-ups are unsure, with re-


gard to collateral, about which direction they want to take,” he says. “But I explain to them that they can either cash collater- alise LOCs, or just put cash in a trust and be done with it. I also explain that the fees on trusts are usually far less expensive.” He also notes that for at least two rea-


sons, trusts are actually easier to establish then LOCs.


First, LOCs require a credit


review process. Trusts do not. Second, Wells Fargo has pre-established the required lan- guage of the trust agreements with most of the counterparties to these arrangements. So most of the work required to establish a trust is already done. 


www.intelligentinsurer.com


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20