New York MTA targets $125m parametric MetroCat Re 2017-1 cat bond

by Artemis on May 2, 2017

The New York Metropolitan Transportation Authority (MTA) is returning to the catastrophe bond market for its second issuance, a $125 million MetroCat Re Ltd. (Series 2017-1) cat bond, which will provide the NY MTA’s captive insurer the First Mutual Transportation Assurance Co. with parametric storm surge and earthquake reinsurance protection.

The NY MTA first came to the cat bond market in 2013, when it secured a $200 million, single peril MetroCat Re Ltd. (Series 2013-1) deal that provided its captive with reinsurance against New York metropolitan area storm surge that was induced by a named storm or hurricane.

The new MetroCat Re 2017-1 cat bond sees the MTA expanding the coverage it will receive from the capital markets, as it adds earthquake coverage to the named storm induced storm surge risk it secured with its previous deal.

This second MetroCat Re transaction will see a $125 million single tranche of Class A notes issued in order to fully collateralize the reinsurance agreements between the issuing vehicle and the captive First Mutual Transportation Assurance Co., which will in turn provide the insurance protection to the MTA.

The notes are exposed to parametric factors associated with storm surges caused by named storms and also earthquake risks, both within the New York metropolitan area, across a three-year term.

A range of calculation locations within the metro area of the city will be used to measure and report data on events that strike the region, with parametric trigger points set which if breached would determine whether a payout is due. Should an event occur the calculation agent will derive an index for the covered peril in question and if the index value breaches the trigger point a payout would occur. The protection is on a per-occurrence basis, so an event will either trigger a full payment or none.

The MetroCat Re 2017-1 notes have an attachment probability of 2.25%, over the medium-term, and an expected loss of the same at 2.25%. This is typical of a one-shot type parametric protection.

We understand that the notes will be offered to catastrophe bond investors with coupon price guidance in a range from 3.5% to 4%.

Transactions like this, parametric and for what is effectively a corporate type sponsor looking for a way to secure efficient insurance protection, remain relatively rare in the catastrophe bond market, but are typically very well received by investors.

The parametric coverage, that this cat bond will provide, would be useful to many major corporations, transport authorities and other entities operating in regions at risk of catastrophic perils and that are looking for a responsive, efficient source of risk transfer.

For some similar entities this sort of parametric cover could actually fill a protection gap where it is unable to secure coverage in the traditional insurance marketplace.

So it’s encouraging to see the New York MTA back in the market and it will help to further the education of other potential cat bond sponsors of this kind.

We’re told that this $125 million MetroCat Re Ltd. (Series 2017-1) cat bond is unlikely to upsize as the sponsor has a fixed layer of coverage to fill.

We’ll update you as the transaction comes to market and you can read all about this deal and every other catastrophe bond in the Artemis Deal Directory.

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