Skyline Re Ltd. catastrophe bond being privately placed by Towers Watson

by Artemis on December 7, 2012

According to sources, Towers Watson Capital Markets (TWCM) are in the process of marketing and placing another private catastrophe bond transaction on behalf of a U.S. primary insurer. The private placement is looking to secure at least $50m of multi-peril cover for the sponsor, with covered perils being New Madrid earthquake, severe thunderstorms and tornadoes. TWCM are sole structuring agent and bookrunner on the transaction which is being issued as Skyline Re Ltd. (Series 2013-1).

The Skyline Re 2013 cat bond deal has been in the market for a few weeks, according to our sources, but as with all private placements details are scarce. Following discussions with a number of our sources we now have sufficient information available to warrant an article about the deal.

This Skyline Re Ltd. cat bond deal will see a single tranche of Series 2013-1 notes being issued. We understand that the deal is being marketed at $50m but are told that there may be room for that to grow if sufficient investor interest is received.

The transaction provides indemnity cover for the two perils, with New Madrid quake coverage on a per-occurrence basis and severe thunderstorm and tornado on an aggregate basis. We’re told the trigger has been structured in a similar way to a top or drop excess reinsurance program. We understand the top coverage layer is for New Madrid quake in specific states while the severe thunderstorm is the drop coverage layer and is on a county basis. This is an unusual structure for a cat bond, but makes sense, we hope to be able to bring more details on this structure once the deal has closed. The way this is structured suggests that tornado and severe thunderstorm makes up most of the risk associated with the deal.

We understand the deal has a one-year risk period and suspect that this is a case of trying out the capital markets to see whether this top or drop cover can be achieved at a more attractive price than in the traditional reinsurance markets.

Towers Watson Capital Markets continues to be one of the innovators in the private cat bond space, finding new ways for their clients to access the capital markets with smaller cat bond deals. Previously TWCM brought both Oak Leaf Re 2011-1 and Oak Leaf Re 2012-1 to market for a Florida homeowner’s specialty insurance company. Of course others place private deals for specific sponsors or even for specific investors, but we rarely get to hear about those private deals. The TWCM deals are privately placed 144A cat bonds we understand and hence unrated. We suspect that these types of transactions will become more prevalent as the desire to access the capital markets for reinsurance cover continues to grow.

We’ll update you if or when we hear more about this transaction and you can find details on it in our Deal Directory.

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