Skyline Re Ltd. (Series 2013-1)

Skyline Re Ltd. 2013 is a private catastrophe bond transaction which is being structured, marketed and privately placed by Towers Watson Capital Markets on behalf of an undisclosed U.S. primary insurance group.

The transaction seeks to secure at least $50m of multi-peril reinsurance cover for the sponsoring insurer. Cover is for New Madrid earthquake and severe thunderstorm or tornado risks. A single tranche of Series 2013-1 notes are being issued.

The transaction involves a single tranche of notes being privately placed with capital market investors to collateralize an underlying reinsurance policy for The Cincinnati Insurance Company. The deal covers a $100m layer of risk, with a pro-rata limit of $72m which has been collateralized by the $61.2m of notes issued by Skyline Re and the net premium.

Cover is on an indemnity trigger basis but the trigger is designed to act like a top or drop excess layer of reinsurance cover. We understand the top coverage layer is for New Madrid quake in specific states while the severe thunderstorm is the drop coverage layer and is on a county basis. The way this is structured suggests that tornado and severe thunderstorm makes up most of the risk associated with the deal.

Severe thunderstorm, which includes tornado losses, is on an aggregate basis and applies to the 75 counties with Cincinnati’s highest amount of total insured property values. As we understand it the earthquake coverage is not county limited, rather it applies to any quakes on the New Madrid fault zone causing Cincinnati losses in pre-defined States.

For severe thunderstorm risks, loss recovery under the terms of the reinsurance treaty begins when all events in aggregate exceed $125m of storm losses, after a $5m deductible per event.

For New Madrid earthquake risks, which provides protection on a per-occurrence basis, insured losses have to exceed $600m before any loss to the Skyline Re cat bond would occur.

The deal has a one year risk period.

The transaction upsized to $61.2m at close due to demand from investors and the sponsor, Cincinnati Insurance Companies desire to support that demand. TWCM told us that the deal was upsized as far as the sponsors budget would allow.

On the pricing of the transaction, Rick Miller from TWCM said that; “Relative to the reinsurance limit, the deal priced at a net rate-on-line of 15%.”