Alternative collateral provider and financing company Karson Management of Bermuda, said this week it has completed the first ‘K-Note’ reinsurance collateral financing transaction in Canada.

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.

The facility, first introduced in 2010, aims to provide an efficient and scalable source of short and long-term collateral, with Karson looking at not just the life insurance securitization sector but also P&C reinsurance and insurance-linked securities markets.

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.”

At the time of the launch, Hendrix said that what Karson had built is “simple, secure and standardized, while meeting the high quality security required by clients and the eligibility requirements of regulators.”

Dean Fletcher, head of Corporate Trust EMEA at BNY Mellon, added: “With the influx of new regulations there is a continual need to scrutinise effective ways of meeting capital adequacy requirements. 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.”