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🌉 '''Bridge financing''' is a short-term funding arrangement used in the insurance industry to provide immediate capital while a more permanent financing solution is being arranged. In practice, an insurance or [[Definition:Reinsurance | reinsurance]] company — or a [[Definition:Private equity | private equity]] sponsor acquiring an insurance platform — secures bridge funds to meet an urgent capital need such as closing an [[Definition:Mergers and acquisitions (M&A) | acquisition]], meeting a sudden increase in [[Definition:Regulatory capital | regulatory-capital]] requirements, or funding a large [[Definition:Catastrophe | catastrophe]] loss before recoveries from [[Definition:Reinsurance | reinsurers]] or [[Definition:Insurance-linked securities (ILS) | capital-market instruments]] materialize. The bridge is designed to be temporary — typically maturing in six to twenty-four months — and carries higher interest rates than long-term debt to reflect its short duration and the urgency of the borrower's need.

🔧 The mechanics depend on the context. In M&A, an [[Definition:Investment bank | investment bank]] may commit a bridge loan to an acquirer so that it can sign a binding purchase agreement and demonstrate certainty of funding, with the expectation that the bridge will be refinanced through a public bond offering, [[Definition:Surplus note | surplus note]] issuance, or equity raise before or shortly after closing. For operating insurers, bridge financing might take the form of a revolving credit facility drawn down after a major [[Definition:Natural catastrophe | natural catastrophe]] — hurricanes, earthquakes, or typhoons — when [[Definition:Claim | claims]] payments must begin immediately while [[Definition:Reinsurance recovery | reinsurance recoveries]] and [[Definition:Catastrophe bond | catastrophe-bond]] proceeds work through their settlement cycles. In jurisdictions governed by [[Definition:Solvency II | Solvency II]], [[Definition:Risk-based capital (RBC) | RBC]], or [[Definition:C-ROSS | C-ROSS]] frameworks, regulators pay close attention to bridge arrangements because they can temporarily mask underlying capital deficiencies if the permanent take-out financing fails to materialize.

📌 Speed and reliability of execution are what make bridge financing valuable in an industry where capital adequacy is continuously monitored and regulatory windows for completing transactions can be narrow. A bidder in a competitive [[Definition:Auction | auction]] for an insurance company that cannot demonstrate committed funding risks losing the deal to a rival with a fully underwritten bridge facility in hand. At the same time, bridge financing introduces refinancing risk — if market conditions deteriorate or the borrower's credit profile weakens before the bridge matures, permanent capital may be available only on materially worse terms. For this reason, [[Definition:Rating agency | rating agencies]] closely evaluate the terms, duration, and take-out strategy associated with any bridge facility when assessing an insurer's or reinsurer's financial flexibility.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Capital raising]]
* [[Definition:Surplus note]]
* [[Definition:Mergers and acquisitions (M&A)]]
* [[Definition:Regulatory capital]]
* [[Definition:Catastrophe bond]]
* [[Definition:Revolving credit facility]]
{{Div col end}}

Definition:Bridge financing - Revision history

PlumBot: Bot: Creating new article from JSON