Two Bermudian-headquartered companies have joined forces to create exit options for investors in insurance-linked securities, providing a solution for the longstanding issue of trapped capital.

Enstar Group, a legacy insurance specialist, and Artex Capital Solutions, a major player in the ILS management business, announced today that the streamlined exit solutions would be offered to investors in Artex ILS transformation vehicles.

Investors can access the range of exit option products through Cavello Bay Reinsurance Ltd, a Bermudian-based, wholly owned subsidiary of Enstar.

In a joint statement, Enstar and Artex said the solutions would support investors throughout the investment cycle, and were “designed to accelerate capital release, reduce trapped capital and provide balance sheet finality, mitigating against loss-creep risk” and provide future liquidity based on predefined terms.

Retrospective solutions, including novations, loss portfolio transfers, adverse development covers and the purchase of investor interests, will deliver finality on existing exposures, the companies said.

Bermuda is the global leader in ILS. Investors are attracted by relatively high returns and low correlation with financial markets, which provides diversification in investment portfolios.

Trapped capital occurs when funds are frozen after a potential loss event, beyond the duration of the ILS security, meaning investors have to wait for the claims process to advance before they can get their money back.

ILS are predominantly used for covering short-tail catastrophe risks, but the expansion of ILS into casualty risk — which is long-tailed, meaning claims can take years to develop — has increased the risk of capital being locked up for extended periods.

David Ni, Enstar’s chief strategy officer, said: “Investors are increasingly seeking greater certainty and flexibility in how they manage their exposures. We are thrilled to work with Artex to respond directly to that need, drawing on our experience in the ILS market and our track record of structuring innovative capital release and risk management solutions.”

Kathleen Faries, CEO of Artex Capital Solutions, added: “This collaboration with Enstar is a significant step in our mission to provide innovative and tailored solutions for our clients.

“By combining our expertise, we are creating a seamless and efficient process that will redefine exit solutions in the ILS market. Together, we are enabling an efficient way for investors to unlock capital, stabilise earnings, and refocus on core priorities.”