Towers Watson closes on third Oak Leaf Re catastrophe bond

by Artemis on June 24, 2013

The capital markets and private catastrophe bond specialist arm of professional services firm Towers Watson has announced the completion of its latest privately placed cat bond deal. Towers Watson Capital Markets (TWCM) has successfully placed a third cat bond for a Florida insurer through the Oak Leaf Re special purpose vehicle.

The transaction, Oak Leaf Re Ltd. (Series 2013-1), closed successfully at $30.49m in size and is the third issuance in three consecutive years through the Oak Leaf Re vehicle. The transactions keep getting bigger in size as well, showing the increasing appetite of the Florida homeowner insurer sponsor of the Oak Leaf Re deals.

The first Oak Leaf Re deal in 2011, Oak Leaf Re Ltd. (Series 2011-1), was just $11.95m in size. This was followed by the 2012 transaction, Oak Leaf Re Ltd. (Series 2012-1) which was $22.78m. So the 2013 Oak Leaf Re deal sees the sponsor growing its capital market backed reinsurance cover by almost 50%.

The Oak Leaf Re 2013-1 private catastrophe bond has is again a one-year deal and provides the sponsor, a Florida homeowners specialty insurance company and a brokerage client of Towers Watson, with a source of indemnity-based, collateralized catastrophe reinsurance coverage.

“We are pleased to see the continuing and growing commitment of insurance-linked securities (ILS) investors to the Oak Leaf program,” commented Michael Popkin, TWCM’s co-head of ILS. “As a repeat issuer, the cedant was able to enhance its already established relationships with investors, which is critical in the private placement market.”

The 2013 Oak Leaf Re cat bond has had a few changes to its structure to more closely match the cover it provides with the sponsors needs. This year Towers Watson said the cat bond contains three layers of the sponsor’s risk management program, including a reinstatement premium protection layer. In a similar manner to the previous Oak Leaf Re private cat bonds, another layer of the 2013 deal provides both cover for a top layer for severity and an aggregate layer for frequency protection.

It’s just these types of custom features within the cat bonds structure that makes these private deals so attractive to sponsors right now. The cat bond cover can now very closely match protection provided through traditional reinsurance programs, with the added benefits of diversifying sources of protection into the capital markets as well as the fully-collateralized nature of the coverage and currently attractive rates.

“By working closely in an integrated fashion with traditional reinsurance brokerage placement, we ensure the capital market piece fits squarely within the overall risk transfer while providing cedants with the most efficient execution,” said Rick Miller, TWCM’s co-head of ILS.

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