TCIP will look to issue more Turkish earthquake catastrophe bonds

by Artemis on December 2, 2013

The Turkish Catastrophe Insurance Pool (TCIP), is likely to look to the catastrophe bond market again as it explores options to increase the amount of capacity it can provide in the event of a major earthquake striking Turkey, according to the chairman of its board.

The TCIP, which acts as the earthquake insurer of last resort across Turkey, provides government backed, compulsory earthquake insurance for property owners. Its claims paying ability is now as high as $5 billion, according to its chairman Selamet Yazici, the highest level in its history.

One of the factors which has helped the TCIP reach this record high level of claims paying ability is the successful issuance of its Bosphorus 1 Re Ltd. catastrophe bond earlier this year. The transaction raised $400m of fully-collateralized reinsurance protection for the earthquake insurance pool at a very competitive price.

TCIP executives expressed their delight at the success of the Bosphorus cat bond, as we wrote previously here, saying that the capital markets were a complement to its traditional reinsurance coverage, that the deal was seen as a real success and that it looked forward to approaching the capital markets to diversify its reinsurance sources again in future.

According to press reports in Turkey this sentiment hasn’t changed and the TCIP sees a real possibility to lift its claims paying ability even further with the help of cat bonds. As more homeowners register with the TCIP’s insurance program, 6 million to date and more expected to follow, the requirement to grow its reinsurance protection becomes ever more important.

Chairman Selamet Yazici said that TCIP would look to increase the size of the earthquake pool. As they do that he acknowledged the importance of growing its reinsurance cover and said that TCIP is considering further sales of catastrophe bonds as a way to increase its coverage.

In parallel with increasing the number of policies within the earthquake pool, Yazici stressed the importance of increasing its ability to meet claims. TCIP will seek to further increase its reinsurance, aiming to create more capacity to pay claims, but ensuring it is from reliable sources and assists it to further diversify its sources of reinsurance capacity.

Another TCIP Turkish earthquake catastrophe bond is likely to be well-received by the insurance-linked securities market and ILS investors, given the demand for diversifying perils and new paper. Approaching the cat bond market again for coverage seems likely for the TCIP, with it seemingly a question of when, rather than if, it will.

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