Golden State Re II shows investor appetite, new ILS dynamic: WCMA

by Artemis on September 29, 2014

The recently completed Golden State Re II Ltd. catastrophe bond, sponsored by the California State Compensation Insurance Fund (SCIF), demonstrated the “rapidly changing dynamics in the ILS landscape over the last three years,” according to WCMA’s Tony Ursano.

The Golden State Re II cat bond, the second time the SCIF has tapped the capital markets via an insurance-linked securitization, saw the State Fund increase the amount of capital markets-backed capacity it benefits from, while also reducing the cost of the cover significantly.

Tony Ursano, CEO of Willis Capital Markets & Advisory the capital markets and ILS focused unit of insurance and reinsurance broker Willis Group, said that the steep drop in pricing, while also upsizing the cat bond, showed how the ILS market dynamic has changed over recent years.

WCMA structured and placed the $250m cat bond for the SCIF, successfully securing it fully-collateralized reinsurance protection for workers’ compensation claims resulting from California earthquake events over a term of slightly over four years and three months.

The cat bond features a modelled loss trigger, structured on a per-occurrence basis, to most closely match the protection to the needs of the State Fund and its workers’ compensation exposures in the state of California.

WCMA said that investors were “eager” to support the transaction, helping it to upsize from a $150m to $250m in size, while at the same time the pricing on the deal settled at the lowest end of the initial guidance, to offer investors a coupon of 2.2%.

The Golden State Re II cat bond will replace the $200m Golden State Re Ltd. cat bond, which was issued in 2011 and matures on 8th January 2015. That deal covered the same layer of risk as the renewal bond but priced significantly higher, so not only did the SCIF increase the amount of cover it benefits from, it did so at significantly more attractive pricing.

Tony Ursano explained; “The pricing that State Fund was able to obtain on Golden State Re II highlights the rapidly changing dynamics in the ILS landscape over the last three years. For a similar layer that was placed in 2011, State Fund was able to obtain 25% more capacity while pricing dropped more than 40%.”

For WCMA this was the seventh successful cat bond placement the firm has worked on in 2014, with five of those seeing the firm acting as sole manager. In total WCMA has worked on twelve cat bonds which remain outstanding at this time, according to our ILS market bank & broker leaderboard.

Ursano expects the ILS market will support similar transactions going forwards, adding; “We expect investors to continue to welcome well-structured deals as capacity continues to seek ways to access insurance risk.

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