Bosphorus 2015-1 cat bond set at $100m for TCIP, prices at low-end

by Artemis on August 12, 2015

The Turkish Catastrophe Insurance Pool’s (TCIP) new Bosphorus Ltd. (Series 2015-1) parametric Turkish earthquake catastrophe bond is set to complete at just $100m in size, while the pricing has been set at the low-end of the revised guidance.

The second Bosphorus cat bond from the TCIP will provide the insurer with fully-collateralized per-occurrence reinsurance coverage, for a slightly more risky layer of its program than its current Bosphorus 1 Re Ltd. cat bond from 2013.

The Bosphorus 2015-1 cat bond transaction was launched to the market with a stated minimum size of $100m in July. At the next update, the transaction was understood to be targeting from that minimum of $100m up to a maximum size of $200m, while at the same time the price guidance was lowered to below the initial range.

Now, Artemis understands that the TCIP has settled for the minimum, with the Bosphorus 2015-1 catastrophe bond destined to provide $100m of additional parametric reinsurance protection to the insurer.

Given the TCIP already has the $400m Bosphorus 1 Re Ltd. cat bond in-force until its maturity in April 2016, the insurer will have $500m of protection from cat bonds from the completion of the 2015 transaction, so perhaps will aim for another issuance next year allowing it to assess market conditions in the meantime.

The pricing guidance for the Bosphorus 2015-1 cat bond started at 3.5% to 4%, but was then reduced to below that initial range with the deal then marketed with a coupon of 3.25% to 3.5%.

At final pricing we understand that the coupon settled at the lower end of the already reduced guidance, at 3.25%.

Based on the initial expected loss of 1.5%, that means the Bosphorus 2015-1 cat bond will offer investors a multiple of 2.17 times the expected loss. That’s lower than the current Bosphorus cat bond from 2013, which had a multiple of coupon to expected loss of 2.48 times, but at a lower EL of 1.01%.

The TCIP will be pleased with the pricing comparison, with this Bosphorus 2015-1 cat bond covering a riskier layer of its program at a lower price than the 2013 transaction. That’s no surprise though, given the decline in cat bond and ILS pricing witnessed over the last couple of years.

It seems likely that the TCIP will revisit its reinsurance program again next year, when the 2013 cat bond is scheduled for maturity to assess whether to return to the capital markets again at that time for another replacement.

There had been rumours that the TCIP would prefer to secure indemnity protection from its cat bond, but the insurance market in Turkey is considered unlikely to be ready to support such a deal. Perhaps in a year’s time the ILS market may be more ready and willing to accept an indemnity cat bond from the TCIP as well.

We understand that the transaction is scheduled to complete early next week now. You can read all about the Turkish Catastrophe Insurance Pool’s (TCIP) Bosphorus Ltd. (Series 2015-1) catastrophe bond and every other cat bond transaction to date, in the Artemis Deal Directory.

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