JLT Capital Markets closes largest Oak Leaf private catastrophe bond yet

by Artemis on June 9, 2014

Jardine Lloyd Thompson Capital Markets (JLTCM) Inc. has closed the largest Oak Leaf Re private placement catastrophe bond to date, with the completion of Oak Leaf Re Ltd. (Series 2014-1) at $44.035m.

This is the fourth Oak Leaf Re private cat bond that the Jardine Lloyd Thompson Capital Markets (JLTCM) Inc. team, part of reinsurance broker JLT Towers Re, has arranged and placed for this unnamed Florida homeowners specialty insurance company sponsor and the largest Oak Leaf cat bond to date. As with the previous Oak Leaf cat bond deals, the Series 2014-1 transaction is being issued through Oak Leaf Re Ltd., a Bermuda domiciled special purpose insurer.

The JLTCM team arranged the first $11.95m private placement  of cat bond notes through the Oak Leaf Re 2011-1 transaction, then helped the sponsor double the cover it secured from the cat bond market with Oak Leaf Re 2012-1 coming in at $22.78m, before growing the deal again to $30.49m in 2013 with Oak Leaf Re Ltd. (Series 2013-1).

The $44.035m Oak Leaf Re 2014-1 private cat bond provides the cedant with a one-year source of fully-collateralized catastrophe reinsurance protection for losses to its Florida book of business, incurred from Florida named storms, using an indemnity trigger. The cat bond is split into three tranches of notes, each attaching at different levels of loss to the cedant.

The Oak Leaf transaction structures are unique in that the three tranches fulfill very different protection requirements for the cedant. The Class A tranche, which is $36.8m in size, provides both severity and aggregate protection in a top and drop mutli-section structure. The Class C tranche of notes, $2.125m in size, provides multi-section cover at a much lower level in the cedants reinsurance tower. The final tranche of Class D notes, $5.11m in size, provides reinstatement premium protection for the cedant.

The steady growth of the Oak Leaf Re catastrophe bonds shows the sponsors increasing comfort with the capital markets as a growing source of reinsurance protection as well as the investors comfort with the sponsor, its book of business and the Oak Leaf structure designed by JLTCM.

“As the fourth annual Oak Leaf transaction, both the cedant and the investors are benefiting from a consistent issuance. This is part of the long-term relationship that each is enjoying,” commented Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets.

JLTCM has become a specialist at providing catastrophe bond protection to smaller cedants, facilitating a number of private placement cat bonds over recent years and recently launched a multi-cedant issuance vehicle.

Michael Popkin continued; “Oak Leaf reflects a trend that we are seeing with our cedants, namely that once a program is established they begin to view capital markets as part of their overall reinsurance program and start to come to market on a regular basis.”

As the Oak Leaf series of deals has come to market investors have show a willingness and appetite to support these smaller cat bonds and the growing ambitions of the sponsor, helping them to grow the Oak Leaf deal every year.

“Each Oak Leaf transaction has seen greater interest from investors, which has helped drive the growing size (Oak Leaf 2011-1 closed at $11.95MM). The Oak Leaf 2014-1 deal upsized as the revised price guidance tightened,” commented Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets. “We have seen the Oak Leaf program expand each year, which conveys increased comfort of all parties with the transaction.”

JLTCM told Artemis that it was the larger Class A tranche of notes which upsized, growing approximately 30% during the offering period for this cat bond. Across the three tranches of notes the final pricing was approximately 6% to 10% below the original guidance, demonstrating investors appetite for the notes.

Rick Miller told Artemis that the pricing achieved for the Oak Leaf Re 2014-1 private cat bond was; “Materially lower than seen last year for the expiring program.”

As with all of the JLTCM private cat bonds there was no third-party risk modelling agency contracted for the deal and the investors performed their own analysis of the risks and modelling for the bond, developing their own unique views of the risk, hence there is no single attachment probability or expected loss that can be disclosed.

Michael Popkin explained that the cedant sees the Oak Leaf Re cat bonds as an integral and important part of its reinsurance program; “The Oak Leaf cat bonds make up a meaningful and regular part of the cedants overall program, as evidenced by the repeat issuance and upsizing. These deals show that the capital markets are being integrated in a consistent way into cedant programs, which provides further evidence of the long-term relationship nature of these private cat bonds.”

We’ve added the Oak Leaf Re Ltd. (Series 2014-1) privately placed catastrophe bond to the Artemis Deal Directory.

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