Italian insurer Assicurazioni Generali S.p.A., one of the world’s largest primary insurers which also has one of the largest reinsurance programs, is pleased with the flexibility and diversification that its first catastrophe bond Lion I Re Limited brings.
The Lion I Re catastrophe bond sees Assicurazioni Generali enter into a reinsurance agreement with Lion I Re Limited, an Irish special purpose reinsurance vehicle. The reinsurance agreement provides Generali with per occurrence cover in respect of losses of from European windstorms over a three-year period.
Lion I Re sold a single tranche of Series 2014-1 notes to capital markets investors in order to collateralize the reinsurance agreement, reaching €190m of notes sold to fund the reinsurance contracts underlying the bond issuance.
Generali sees the successful completion of the cat bond as way for it to optimise its protection against catastrophes by transferring some of the risk to bond investors, instead of to its typical reinsurance counterparties in the traditional market.
Generali hailed the fact that the Lion I Re cat bond is the first Rule 144A catastrophe bond to have transferred European windstorm risks to investors using an indemnity trigger. This development now opens the way for other large European primary insurers to seek to replicate this coverage from the catastrophe bond market.
For Generali, the flexibility offered by the catastrophe bond structure was a key point. The Lion I Re cat bond provides Generali with reinsurance protection locked in for a multi-year period at attractive terms. The other key factor that Generali appreciates is the new-found ability to further broaden its sources of risk transfer capital.
“Leveraging the consolidation of the Group’s reinsurance implemented since 2013, this catastrophe bond allows us to further optimize the purchase of reinsurance protection while maintaining a good degree of flexibility and diversifying the panel of capacity providers in order to mitigate counterparty risk,” commented Sergio Balbinot, the Group CInsO of Generali.
“The success of this initiative further demonstrates that the capital markets appreciate the actions our Group is undertaking to optimize its capital allocation in line with the strategic targets announced last year. For us it is a new step of utmost importance aimed at an efficient implementation of alternative risk transfer mechanisms where appropriate,” said Alberto Minali, Group CFO of Generali.
Generali said that the cat bond allows it to benefit from ‘convenient pricing’ even when compared to the currently soft reinsurance market, suggesting that the ILS market may have undercut traditional reinsurers to support this issuance.
Generali also appreciated the support of the ILS and capital market investors who helped it to increase the size of the Lion I Re cat bond before close.
Finally, Generali hints that the cat bond market is now set to become a considerating in its future reinsurance renewals, saying; “The catastrophe bond market has continued to grow during the last few years, with new investors seeking de-correlated returns, providing fresh capital at competitive pricing levels. Generali will continue to closely monitor this market, and expects it to continue to play a relevant role in the capital management and risk transfer strategies of the insurance industry.”
Fitch Ratings has now assigned a ‘B+sf’ rating to the €190m Series 2014-1 principal at-risk variable rate notes issued by Lion I Re Limited.