Karson and BNY Mellon Collaborate on Innovative Capital Financing Transaction
First K-Note Transaction in Canada
Hamilton, Bermuda, January 19, 2016 – Karson Management (Bermuda) Limited and affiliates (Karson), a provider of reserve, capital and collateral financing solutions, and BNY Mellon, a global leader in investment management and investment services, today announced the successful completion of the first K-Note reinsurance collateral financing transaction in Canada. The patented K-Note financing platform has been designed by Karson around a number of BNY Mellon’s corporate trust, custody and collateral management services.
The multi-million Canadian dollar transaction involved the issuance and deposit of a K-Note into a reinsurance security arrangement (RSA) account established in accordance with the Canadian regulator, the Office of the Superintendent of Financial Institutions (OSFI). The K-Note is backed by a payment obligation of a third-party financial institution and a portfolio of investment assets.
Derrell Hendrix, CEO of Karson, said: “We are pleased to have concluded this first of what we hope to be many Canadian reserve financing transactions based on clear guidance from the Canadian regulator. The Karson program has again successfully transformed its access to market capacity into the issuance of an instrument, a K-Note, that satisfied our client’s reinsurance collateral financing need. We have been able to meet a very challenging client requirement while continuing to develop a scalable and sustainable execution platform with our partners at BNY Mellon.”
BNY Mellon is Karson’s service partner of choice and its London service team was appointed in 2009 for the forerunners to this new transaction.
“With the influx of new regulations there is a continual need to scrutinise effective ways of meeting capital adequacy requirements,” said Dean Fletcher, head of Corporate Trust EMEA at BNY Mellon. “This is a landmark transaction and will provide a template for us to work with Karson to help their clients navigate the new regulatory landscape following the financial crisis.”
Having completed a number of K-Note transactions in the U.S. between 2009 and 2011, Karson obtained favourable guidance from OSFI in June of 2011, which OSFI re-confirmed in December of 2013 following a revision of capital requirement regulations for Canadian insurance and reinsurance companies. Under the transaction, the K-Note was rated by both Standard & Poor’s and DBRS.