Johnston Re Ltd. Series 2011-1 catastrophe bond being marketed

Munich Reinsurance America Inc. are actively marketing the second catastrophe bond in the Johnston Re series of deals. As with their 2010 Johnston Re cat bond, the deal provides U.S. hurricane cover for Munich Re America for a reinsurance agreement they have with two North Carolina non-profit insurance associations, the North Carolina Joint Underwriters Assn. (NCJUA) and the North Carolina Insurance Underwriters Assn. (NCIUA).

While Munich Re America are the company who benefit from a retrocessional reinsurance agreement with Johnston Re, who will cover hurricane losses on a per-occurrence basis in North Carolina, the covered losses are actually directly linked to the losses experienced by the two NC associations members. The NCJUA and the NCIUA (and their insurance company members) benefit from a long-term, fixed cost source of reinsurance through this deal.

Johnston Re Ltd. Series 2011-1 is being issued in two tranches of Class A and Class B notes. Both are expected to have a term of three years with maturity expected on 8th May 2014. The size of each tranche has not been advertised in the marketing documentation, but each have been given a preliminary rating of ‘BB-‘ by Standard & Poor’s. Each class of notes offer Munich Re America indemnified risk transfer via a retrocession agreement with Johnston Re for their per-occurrence reinsurance agreement with the NCJUA and NCIUA for a three year period.

For the first risk period (year) of the deal the Class A notes will cover a to be determined percentage of hurricane losses between an attachment level of $2.977 billion and an exhaustion level of $3.435 billion. The Class B notes will cover a to be determined percentage of losses between an attachment level of $3.256 billion and an exhaustion level of $3.913 billion. The deal uses an indemnity trigger against the losses actually experienced by the NCJUA and NCIUA. There is a possibility of extending the transaction for losses from any qualifying hurricane event to develop. Collateral for the notes will be invested in highly rated U.S. Treasury money market funds.

AIR Worldwide are providing risk modelling using their hurricane model and they will also be responsible for calculation of two annual resets during the deals lifetime. GC Securities are sole bookrunner and a co-lead manager on the deal, Munich Capital Markets are the other co-lead manager.

This is perhaps the first of the U.S. hurricane season cat bonds that had been expected this year, we expect the market to become more active for the next month or two as others seek extra U.S. wind cover before the season begins. We’ve added this deal to our Deal Directory and we’ll update the listing and bring you news as this latest Johnston Re Ltd. cat bond transaction comes to market.