Akibare II Ltd., Japan typhoon catastrophe bond comes to market

by Artemis on March 13, 2012

Akibare II Ltd., the first Japan typhoon catastrophe bond of 2012, has been launched and is being marketed to investors. The $90m cat bond is being sponsored by Swiss Re on behalf of the ultimate cedant Japanese insurer Mitsui Sumitomo Insurance Co. Ltd. a subsidiary of MS&AD Insurance Group Holdings. The transaction will go someway to replacing the $120m Akibare Ltd. cat bond from 2007 which matures at the end of April.

Akibare II Ltd. is a Cayman Islands domiciled SPV set up as a variable rate note program. The notes issued by Akibare II will be exposed to Japanese typhoons and tropical storms (including wind and flood losses) over a four-year period until the end of March 2016. The transaction will provide fully collateralized multi-year protection to Swiss Re, the risk transfer contract counterparty and ultimately to Mitsui Sumitomo. Residential, commercial and industrial line of business losses will be covered by this cat bond. The exposure will be at its peak in the summer months of July through October when the Japanese typhoon season is at its peak. Tokyo as the largest urban area of Japan contributes 16% exposure to the modelled portfolio of risk.

AIR Worldwide provide risk modelling for this transaction. The Akibare II deal uses a modelled loss trigger and the single tranche comprising $90m Series 2012-1 Class A notes will have an index value attachment point of 1180 and an exhaustion point of 1830.

After an event, modelling agency AIR Worldwide will gather event parameters from the following reporting agencies; Japan Meteorological Agency, Regional and Mesoscale Meteorology Branch, and the Tropical Rainfall Measuring Mission. Parameters such as location, central pressure and precipitation data will be used to create a map of the area impacted by a typhoon. This information will be run though AIR’s model against a notional portfolio to establish a modelled notional loss. Based on the modelled notional loss figure, AIR will calculate an event percentage, an index value and any corresponding event payment amount. The notional portfolio can be reset annually along with the scaling factors. Resets will be effective on the 1st April each year.

Swiss Re Capital Markets are structuring agent and bookrunner while GC Securities are co-manager for this cat bond deal.

The collateral from the sale of the notes will be deposited in a collateral account and invested in U.S. Treasury money market funds.

Standard & Poor’s have rated the single tranche of $90m Class A notes ‘BB’.

This Akibare II Ltd. catastrophe bond offers investors another good diversification opportunity and so could upsize before close. Even if it completes at $90m it will help to take 2012 cat bond and ILS issuance up to over $1.7 billion making this first quarter a record for issuance volume.

We’ll bring you more details as the deal progresses to completion and it has been added to our catastrophe bond Deal Directory.

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