Twelve Capital issues $28m Dodeka IV private catastrophe bond

by Artemis on June 2, 2014

Specialist Swiss-based insurance-linked securities (ILS) and reinsurance-linked investment manager Twelve Capital has announced the completion of a third private catastrophe bond transaction, the $28m Dodeka IV.

Dodeka IV is a private placed zero-coupon cat bond transaction which completed on the 1st June and provides an unnamed sponsor with reinsurance protection for a six and a half month period, to 16th December 2014.

Dodeka IV sees some new features come to Twelve Capital’s private cat bond issuance platform. Unlike the two previous Dodeka transactions, Dodeka I and Dodeka II, the Dodeka IV issue is split into two tranches, providing $28m of cover between them. The protection from Dodeka IV is for U.S. wind and hurricane risks, but the tranches provide more granular exposure to Twelve’s investors, with one tranche focused on Florida wind risk alone and the other on wind risks across the U.S. Gulf Coast states.

The Dodeka IV private cat bond provides the unnamed sponsor with per-occurrence protection for market-wide losses using an industry loss trigger. For the cat bond to trigger, market losses would need to exceed a pre-defined level in either Florida or the Gulf Coast states.

Twelve Capital uses the Dodeka platform to benefit its investors, by bringing them risk in a liquid format, while also benefiting Twelve’s relationships with ceding partners, as Dodeka offers another reinsurance opportunity to cedents and a way to access diversified risk capital efficiently.

This Dodeka IV transaction shows that Twelve Capital intends to use the platform to gain access to risk it sees as more difficult to acquire through the public cat bond market. Dodeka IV provides investors with access to a much more granular level of risk, with the Gulf of Mexico states focused tranche quite a rarity in the wider cat bond market.

Twelve Capital sees this as an important ability to bring more value to its investors, enabling them to access risk which is more difficult to source in a liquid format from the main 144A catastrophe bond market. The Dodeka issuances also allow Twelve Capital to target areas where the broader cat bond and ILS market is weaker, bringing unique risks and investment opportunities to their client base.

“We anticipate a sound pipeline of private Catastrophe Bonds, as there are plenty of insurance-risk opportunities that can be transferred into note format,” said Dr. Roman Muraviev, Director at Twelve Capital.

Twelve Capital can capitalise on the strong relationships it has built with cedents both through its typical ILS and collateralized reinsurance work as well as from its insurance debt provisioning. Twelve Capital has the ability to structure, originate and model risks which can be transformed into a liquid investment opportunity through the Dodeka platform, making the process efficient and transparent for cedent and investors.

Twelve Capital told Artemis that it aims to use Dodeka to continue to bring more rare risk in a liquid format to its investors, filling some of the gaps that exist in the main cat bond market.  In future it may look to also bring private indemnity cat bonds to its investors through the platform as well. Twelve aims to gain access to better quality risks than the broader catastrophe bond market can provide, by using the Dodeka platform, a factor which will be extremely attractive to its existing and future investors.

“Now that the platform becomes more established, in future issuances we will consider converting more complex risks, including indemnity triggered covers, to Dodeka format, in order to continue to provide investors with access to the best quality peak and select diversifying risks,” commented John Butler, Partner and Head of Sourcing.

The private cat bond issuance space, through the Dodeka platform, provides Twelve Capital a way to leverage its strong relationships to gain access to unique risks for its various investment offerings. This gives Twelve Capital a chance to differentiate itself by demonstrating the quality of its origination, risk selection and the efficiency of the structure delivered.

Twelve Capital says that the Dodeka platform can support a variety of risk and trigger types, which will enable it to provide more diversified and unique risks to its investors, while the transformation allows the liquid securities to meet certain specific mandates. We expect to see more from Dodeka in the near future, with a Dodeka III transaction reportedly still in the pipeline.

The Dodeka IV private catastrophe bond was issued using the Kane SAC Limited private cat bond platform, which is operated by global independent insurance manager Kane.

The $28m of notes issued through the Dodeka IV transaction will be listed on the Bermuda Stock exchange, enhancing their liquidity and providing Twelve Capital with improved options and additional transparency to trade the notes on the secondary market.

You can read all about the Dodeka IV private catastrophe bond in the Artemis Deal Directory.

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