GC Securities, the investment banking and insurance-linked securities (ILS) specialist arm of reinsurance broker Guy Carpenter, has successfully structured and placed the first catastrophe bond covering Chinese risks, Panda Re Ltd. (Series 2015-1).
The $50m Panda Re cat bond provides sponsor China Property & Casualty Reinsurance Company Ltd. and China Reinsurance (Group) Corporation (collectively known as China Re), with a $50m three-year source of protection against losses from earthquakes in China.
GC Securities acted as sole structuring agent and bookrunner for the Panda Re cat bond transaction, helping China Re to come to terms with the additional work required to get a cat bond to market and introducing the new sponsor to the ILS investor community.
James Nash, CEO, Asia Pacific Region at Guy Carpenter, commented; “We are delighted and honored that China Re has selected GC Securities as its partner for accessing alternative capital capacity. Demand from Asia-Pacific cedents and interest from capital markets investors has never been higher. Given expected growth in the region for years to come, China Re’s investment to access capital markets capacity is both prudent risk management for China Re and an exciting development for the market in general.”
David Priebe, Vice Chairman of Guy Carpenter, added; “We are proud to have assisted China Re in the execution of this historic transaction, which exemplifies the benefit of the convergence between the reinsurance and capital markets. This transaction demonstrates Guy Carpenter’s and GC Securities’ expertise, as well as our commitment to introducing alternative capital capacity to clients, assisting clients in navigating and understanding innovative forms of risk transfer.”
As the first ever catastrophe bond to benefit a Chinese sponsor or to cover any Chinese catastrophe perils, Panda Re is seen as a groundbreaking transaction which will help to open up the market and bring new diversification to ILS investors. In fact, GC Securities notes that for some ILS investors focused on cat bond investments, this will be the first time Chinese perils has entered their portfolios.
Li Yuanyuan, General Manager of China Re P&C, explained the importance of this first transaction to the Chinese sponsor; “We are proud to be the sponsor of Panda Re, which is issuing the first cat bond covering Chinese perils. I hope this is a good sign of opening the door to transferring Chinese catastrophe risks to the capital markets. Meanwhile, as our business partner, GC Securities has shown a high level of professional service in assisting us as we complete this groundbreaking deal.”
The $50m of Series 2015-1 notes issued by Panda Re provide China Re with indemnity based retrocessional reinsurance protection against losses from Chinese quakes, on a per-occurrence basis.
The notes were issued as USD denominated in order to attract the widest possible investor response, with Panda Re’s limit to China Re based on US dollars, but they are positioned alongside certain layers of China Re’s traditional retrocession program.
Cory Anger, Global Head of ILS Structuring at GC Securities, said; “China Re’s use of private catastrophe bond capacity and selection of structural features demonstrate the astute acumen of China Re in approaching new sources/forms of risk transfer capacity. The protection response of the Series 2015-1 Notes was designed to minimize foreign exchange risk by determining the percentage of Panda Re’s limit response in Renminbi while acknowledging and balancing that best execution of the bond limit from capital markets investors is currently in USD denomination.
“In recognition as the first Chinese earthquake catastrophe bond, China Re took advantage of many latest cat bond features for indemnity-triggered catastrophe bonds but also balanced its need for every bell and whistle in order to maximize investor response. It has been a privilege to work with the China Re team and achieve the success of the Panda Re catastrophe bond.”
Chi Hum, Global Head of ILS Distribution at GC Securities, added; “The strong investor support for Panda Re bonds underscores the appetite of capital markets investors for accepting new risks and regions of the global insurance markets. The investors seized upon this unique opportunity to partner with a world class reinsurer to best access and support the Chinese marketplace.
“The industry-like risk profile of these bonds (given China Re’s broad participation in assuming risk from all Chinese insurers as well as other facultative placements) added to the attraction of the Series 2015-1 Panda Re Ltd. bond. GC Securities is excited to have been able to assist China Re in their first time access to the capital markets and to have brought investors to support Panda Re and China Re’s risk management strategies.”