After Bosphorus success, TCIP to continue using capital markets & ILS

Following the recent successful completion of the $100m Bosphorus Ltd. (Series 2015-1) parametric Turkish earthquake catastrophe bond, the Turkish Catastrophe Insurance Pool (TCIP) intends to continue to build its relationship with the capital markets.

“In view of the constantly growing portfolio of TCIP, our cooperation with the capital markets will continue in the near future, which would allow TCIP to diversify its reinsurance buying and utilize multi-year capacity at a stable price,” commented Süha Çele, Executive Board Member of Eureko Sigorta A.Ş., the insurer that manages the TCIP.

The TCIP’s second catastrophe bond, the recent Bosphorus 2015-1 transaction was completed successfully with the support of reinsurance broker Guy Carpenter’s investment banking and ILS unit GC Securities.

GC Securities was the sole bookrunner for the cat bond transaction, securing the placement of the $100m Series 2015-1 Notes, through recently formed catastrophe bond shelf program, Bosphorus Ltd. The notes benefit the TCIP with a source of fully-collateralized reinsurance protection from the capital markets.

The TCIP appreciates the support and diversification that the capital markets has provided to its overall reinsurance program.

Çele explained; “We are proud to be the sponsor of Bosphorus Ltd. Our previous bond, Bosphorus 1 Re, was a real success story as it is the first cat bond covering Turkish perils. We are pleased to see that the second bond is also well accepted by the capital markets, which is showing us also that the bond program of TCIP is now well established.”

Both of the TCIP’s catastrophe bonds have tapped the capital markets for earthquake reinsurance protection on a parametric basis. The risk pool insurer has now sourced $500m in total of catastrophe bond capacity from capital market investors, after its $400m 2013 deal Bosphorus 1 Re Ltd.

The latest cat bond provides $100m of reinsurance protection across three years on a per occurrence basis for earthquakes that affect the Istanbul region. The transactions parametric trigger is based on certain ground motion measurements captured at specific seismometers that are part of the Istanbul Early Warning and Rapid Response System operated by Boğaziçi University Kandilli Observatory and Earthquake Research Institute (KOERI).

Remzi Duman, Reinsurance Director responsible for reinsurance affairs of Eureko Sigorta A.Ş., explained that the trigger design helped in the cat bond’s success; “The transparent trigger mechanics were understood and accepted by investors, and strong demand made this a highly successful transaction. Bosphorus 1 Re was the first deal from an untapped market, Turkey, and we are happy to sustain our appetite in the ILS market through Bosphorus Ltd.”

David Priebe, Vice Chairman of Guy Carpenter, added; “The successful execution of Bosphorus Ltd. on behalf of TCIP continues to cement GC Securities’ position as the global market leader for capital markets-based insurance risk transfer solutions for public, governmental and quasi-governmental entities. Marsh & McLennan’s continued commitment to bringing alternative capital solutions for the benefit of our global clients highlights the breadth of the GC Securities platform and continues to allow for Guy Carpenter’s global client base to access alternative capital-based risk transfer solutions.”

Cory Anger, Global Head of ILS Structuring at GC Securities, explained that there are a number of differences between the latest Bosphorus cat bond and the first one, as the firm sought to enhance the protection for the TCIP.

“For the Series 2015-1 Notes, TCIP enhanced the initial parametric trigger structure by incorporating three new ground motion seismometers within the parametric index given the continued growth and success of TCIP.

“The use of an unsubordinated, unsecured note issued by the International Bank for Reconstruction and Development as the collateral solution balances giving investors superior investment yield and diversifying the type of collateral solution that are most common in catastrophe bond transactions while maintaining high investment quality for TCIP.

“Finally, the use of a derivative (instead of reinsurance) between Bosphorus Ltd. and TCIP allows for speedy recoveries by TCIP once the parametric index value is determined,” Anger explained.

All of these enhancements to the Bosphorus cat bond structure will be appropriate for many other potential sponsors of parametric cat bonds.

Anger continued; “We are delighted that TCIP has elected to utilize catastrophe bond-based protection for a second time to complement its traditional reinsurance program and build upon the success of its initial use of catastrophe bonds.”

Chi Hum, Global Head of ILS Distribution at GC Securities, discussed the reception that the cat bond received from the ILS investment community.

“The capital markets have continued to forge a symbiotic relationship with TCIP and this has been demonstrated by the overwhelming investor support given the oversubscription of orders seen during the bookbuilding process for the Bosphorus Ltd. transaction and the broad base of investor participation with more than 20 investors.

“The investor base was attracted to the diversifying exposure that the Series 2015-1 Notes provide, in addition to a formulated and transparent parametric trigger. GC Securities is honored to have been instrumental in placing the Series 2015-1 Notes with investors on behalf of TCIP,” Hum said.

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.