New York MTA seeking support for potential future cat bonds

by Artemis on November 1, 2013

First Mutual Transportation Assurance Co. (FMTAC), the New York State-licensed captive insurer subsidiary of the New York Metropolitan Transportation Authority (MTA), is seeking support in connection with potential future catastrophe bond transactions it may sponsor.

The MTA, responsible for much of the transport systems in New York State, and its captive insurance company FMTAC sponsored its first catastrophe bond transaction this year, with the issuance of MetroCat Re Ltd. (Series 2013-1), the first cat bond to bring storm surge risk as a single peril cat bond transaction to insurance-linked securities investors.

The MetroCat Re cat bond was well received by the ILS investment community, who helped the deal to upsize by 60%, from $125m to offer the MTA $200m of coverage, by completion. At the same time the MTA found significant value in the cat bond market as pricing on the deal dropped from the initial price guidance of 5% to 5.5% above the return of the collateral assets to finish with a coupon of 4.5%, a drop of 14% from the mid-point of the original guidance.

After the MetroCat Re deal completed information emerged showing that the New York MTA would actually have liked to have secured at least $300m of reinsurance protection through its first foray in the cat bond market, bringing it back to the levels of reinsurance it had in place in 2012. So the first cat bond sponsored by FMTAC and the MTA, while highly successful, did not fulfill its risk transfer needs.

The MTA clearly appreciates the contribution that catastrophe bonds can make to its reinsurance and risk transfer program. Evidence of this emerged recently when Artemis discovered that the Authority is now actively seeking support from a number of different parties for potential future catastrophe bond transactions.

The Metropolitan Transportation Authority has distributed a request for proposals to ILS and reinsurance market service companies, asking for proposals to be returned covering a number of supporting roles which the MTA will seek to qualify or retain for future services related to cat bond transactions.

The MTA is seeking responses for the roles of; Risk Financial Advisor, ILS Legal Counsel, ILS Initial Purchaser / Structuring Agent and ILS Risk Modeller.

The MTA, and FMTAC, expect to retain a single firm as its Risk Financial Advisor for a period of up to five years, while it will seek to qualify a number of firms in each of the other roles, giving it a panel to select advice and services from.

Firms wanting to respond to the MTA’s RFP need to do so by the 19th November.

The MTA said that the success of MetroCat Re builds a base to build on for future issuance of catastrophe bonds to expand the MTA’s overall reinsurance protection.

It’s encouraging to see the MTA and FMTAC looking to build out a panel of support which will help them to access the capital markets for potential future catastrophe bond transactions, or other uses of alternative reinsurance capital. The high-profile nature of the MTA’s first cat bond helped to build awareness of catastrophe bonds as a risk transfer tool for storm surge, its continued interest an only help that awareness to grow.

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