Generali hails “innovative & flexible” Lion II Re catastrophe bond

by Artemis on July 10, 2017

Italian headquartered global insurer Assicurazioni Generali S.p.A. has hailed the completion of its latest and third catastrophe bond, the recently completed Lion II Re DAC transaction, as an “innovative and flexible” example of how the insurer intends to manage its capital going forwards.

Generali executives hailed the completion of what the first European multi-peril indemnity triggered catastrophe bond and also the first to provide an insurer with reinsurance protection against continental European flood risks.

Assicurazioni Generali S.p.A entered into a reinsurance agreement with Irish special purpose vehicle Lion II Re DAC, to gain coverage on a per occurrence basis for Generali Group losses due to Italian earthquakes, European windstorms and floods across a four-year term.

The risk was then transferred to cat bond investors, through the sale of EUR 200 million of notes issued by Lion II Re, which allows Generali to optimise its capital position and pull a diversified source of reinsurance capacity into its capital model.

Generali highlighted that the Lion II Re cat bond is the first indemnity triggered Rule 144A transaction that covers multiple European perils and also the first to cover European flood risks.

Generali Group Chief Insurance Officer Valter Trevisani commented on the cat bond transaction; “This new product confirms the Group’s strategy started in 2014 with Lion I Re aimed at transferring part of the risk to the capital market through innovative bonds. This latest product has proved to be equally attractive to potential investors as our previous issues. It allows us to further optimize the purchase of reinsurance protection maintaining a good degree of flexibility and mitigating the counterparty risks by expanding the providers’ panel.”

Generali Group Chief Financial Officer Luigi Lubelli added; “For Generali, this is the third ILS bond over the last 3 years, and the success achieved so far confirms it reached a well-established presence in the ILS market. This tool, and more generally the alternative techniques to transfer risks, represents the innovative and flexible approach with which the Group intends to implement its capital strategy.”

Being able to tap into the capital markets, as a complementary source of reinsurance capacity, is increasingly key for large insurance groups like Generali and it’s encouraging to see that noted here, as it typically means a sponsor will be returning.

Being Generali’s third catastrophe bond, the Lion II Re allowed the insurer to expand its capital markets backed reinsurance protection, while securing attractive pricing.

This may be the first European multi-peril indemnity cat bond (under Rule 144a) but that’s largely to do with pricing rather than appetite of investors as European catastrophe reinsurance deals have often been snapped up by traditional reinsurers.

So it’s encouraging to see this hit the market as it shows a large sponsor gaining sufficient comfort with the ILS market to bring a deal like this, rather than simply placing it with the large European reinsurance players.

Generali said that it will “Continue to monitor closely this market, and intend to play a major role in this market availing itself of ILS tools in its capital management strategy and risk transfer.”

ILS and cat bonds were always designed to become a major component of the reinsurance programs of large insurers like Generali. It’s encouraging to see one of the world’s largest insurers signalling that it appreciates this and intends to continue to tap into the capital markets in this way.

Generali’s first cat bond was issued in 2014, with the EUR 190 million European windstorm only Lion I Re Ltd. The insurer then returned to the ILS market in 2016 with a novel Horse Capital I DAC deal that became the first cat bond to transfer third-party motor insurance liability to the capital markets.

You can read all about Generali’s Lion II Re DAC catastrophe bond every other cat bond in the Artemis Deal Directory.

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