In this IN magazine article, Rishi Marwaha, Managing Director of Marsh Securities, discusses how surplus notes can provide strategic advantages for mutual insurers.
Surplus notes are hybrid capital instruments issued by insurance operating companies. They resemble debt in that investors provide capital in exchange for a coupon and repayment terms, but under statutory accounting principles, they generally receive treatment closer to equity.
“Elevated and unpredictable catastrophe losses, reserve pressure on select liability lines, reinsurance market disruption, and investment market volatility have forced management teams to rethink how they build and preserve capital resilience,” Rishi explained. “Against that backdrop, surplus notes have emerged as an increasingly important and prudent strategic capital tool, particularly for mutual insurers seeking flexible, long-term capital without sacrificing governance or strategic independence.”