GC Securities on structuring Travelers Long Point Re III Ltd. catastrophe bond

GC Securities, the investment banking and registered broker-dealer arm of reinsurance broker Guy Carpenter, have issued a press release regarding their involvement as lead structurer and joint bookrunner on the recently completed Long Point Re III Ltd. catastrophe bond which was issued on behalf of sponsoring U.S. insurer Travelers. GC Securities successfully assisted in the placement of $250m of Series 2012-1 notes through Cayman Islands domiciled cat bond issuer Long Point Re III.

The $250m of cat bond notes issued by Long Point Re III will fully collateralize a three-year per-occurrence reinsurance agreement between the issuer and Travelers. The cat bond deal provides protection for northeast U.S. hurricanes affecting states from Virginia to Maine. The bond uses an indemnity trigger and is the first cat bond issued on behalf of sponsor Travelers to do so, the previous Longpoint Re cat bonds both used an industry loss index trigger.

David Priebe, Vice Chairman, Guy Carpenter, said; “The coordinated effort between Guy Carpenter and Travelers ensured a successful transaction that will provide needed capacity and set the stage for even further innovation in this important space.”

Cory Anger, Global Head of ILS Structuring, GC Securities, added; “As a repeat sponsor of insurance-linked securities, Travelers was able to successfully issue its first-ever indemnity-based triggered capital markets transaction with continued strong support from the ILS investor base. The protection from Long Point Re III provides northeast U.S. hurricane protection on a per-occurrence basis, based on the actual reported losses from certain Travelers’ business units.”

Chi Hum, Global Head of ILS Distribution, GC Securities, said; “ILS investors were eager to support Travelers on this diversifying northeast hurricane bond. Travelers’ strategy of utilizing an indemnity trigger provided significant advantages for integrating this cover into their total capacity purchase program. Long Point Re III Ltd. marked the first transaction in 2012 to upsize, while pricing through initial price guidance. GC Securities is proud to have worked with the Travelers on this successful deal execution.”

That final point from Chi Hum is interesting. Long Point Re III priced to offer a coupon of 6% which was below the initial pricing scale that was quoted. This signifies demand in the transaction from investors, likely because they were seeking diversifying opportunities, and also that Travelers will have secured this cover at a reasonable cost.

It’s also interesting to note the change to an indemnity trigger in this latest cat bond from Travelers. We wonder whether that is anything to do with the experience they’ve recently had while resetting their Longpoint Re II cat bond or whether it’s simply a trend in the market right now (there have been a lot more indemnity cat bonds of late)