Cincinnati grows cat bond cover with $180m Skyline Re 2017-1

by Artemis on February 13, 2017

The Cincinnati Insurance Companies has significantly increased the size of its catastrophe bond and collateralised reinsurance protection with the successful issuance of a privately placed $180 million Skyline Re Ltd. (Series 2017-1) issuance with the help of Jardine Lloyd Thompson Capital Markets (JLTCM).

Cincinnati Insurance have now sponsored three catastrophe bonds, with each renewal seeing a near doubling of the bond’s size and all structured and brought to market by the JLTCM team.

A one-year $61.2 million Skyline Re Ltd. (Series 2013-1) was the insurers first private cat bond, which was followed by a $100 million three-year Skyline Re Ltd. (Series 2014-1) and now this much larger latest bond which sees the capital markets taking a greater share of the insurers reinsurance tower.

This Skyline Re 2017-1 transaction is a three-year, privately placed catastrophe bond, which closed on the 7th February 2017, and offers Cincinnati Insurance a fully collateralised source of indemnity based reinsurance protection against losses from earthquakes and severe thunderstorm (convective storm).

The Skyline 2017-1 private cat bond is structured in two classes of notes, with a $100 million Class 1 tranche covering U.S. earthquake risks (excluding California) only on a per-occurrence basis, while an $80 million Class 2 tranche features two sections covering U.S. earthquake risks (excluding California) and U.S. convective storm losses (excluding Florida), respectively on a per-occurrence and annual aggregate basis.

The Class 1 tranche of earthquake only per-occurrence exposed notes will pay investors a coupon of 2.5%, we understand. The Class 2 tranche, with two sections for per-occurrence earthquake and aggregate convective storm losses, is considerably riskier and will pay investors a coupon of 12%.

Cincinnati Insurance also entered into an additional $20 million three-year collateralised reinsurance contract for further U.S. earthquake protection, which takes the total collateralised earthquake protection from this arrangement to $200 million.

Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets, commented on the completion of the Skyline Re 2017-1 cat bond; “Based upon our long-standing partnership with Cincinnati Insurance, we are pleased to collaborate for a third innovative private placement cat bond. We are excited to not only have strong support from existing investors, but also strong support from new investors as well.”

Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets, added; “Since we started structuring private placement cat bonds with Cincinnati Insurance, the level of acceptance for private placement cat bonds has grown significantly. One of the major advantages of private placement cat bonds is that they allow for more customized risk transfer, which is evident again with Skyline 2017.”

“ILS investors are quite comfortable with JLTCM’s private placement platform, as indicated by its growth in issuance size as well as coverage. Indeed, the 2017 program has grown substantially to $180M from $61.2M in 2013. Additionally, coverage has expanded from a constellation of counties to nearly nationwide. It is clear that the potential exists to do much larger private placement cat bonds,” concluded Edward Hochberg, CEO of JLT Re North American and CEO of JLT Capital Markets.

The growth of this now regular private cat bond issuance from Cincinnati Insurance shows that the sponsor has an increasing comfort with the capital markets, and that ILS investors are able to support much larger privately placed deals today.

JLT Capital Markets acted as both structuring agent and bookrunner for this new Skyline Re issuance for Cincinnati Insurance. These privately placed deals help sponsors to access the capital markets with greater efficiency and lower friction.

“As a $180MM bond, it shows that private placement cat bonds have come of age,” Miller told Artemis.

As these private cat bond’s grow it is vital to expand the investor base who they are marketed to as well, in order to be able to achieve the deal-size the sponsor requires.

Popkin explained; “The syndicate was robust with a good mix of investors.”

Read all about the Skyline Re Ltd. (Series 2017-1) catastrophe bond from Cincinnati Insurance have been added to the Artemis Deal Directory.

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