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MetroCat Re Ltd. (Series 2023-1)

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MetroCat Re Ltd. (Series 2023-1) – At a glance:

  • Issuer: MetroCat Re Ltd.
  • Cedent / sponsor: First Mutual Transportation Assurance Co. (NYC MTA)
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: EQECAT Inc.
  • Risks / perils covered: New York storm surge (named storm induced)
  • Size: $100m
  • Trigger type: Parametric
  • Ratings: NR
  • Date of issue: May 2023

MetroCat Re Ltd. (Series 2023-1) – Full details:

The New York Metropolitan Transportation Authority (MTA), the main transport operator in the area, is back in the catastrophe bond market with what will be its fourth issuance of a MetroCat Re deal, seeking named storm linked storm surge insurance protection on a multi-year and parametric basis.

For 2023, the New York MTA is reverting back to seeking just named storm induced storm surge protection with this new MetroCat Re 2023-1 cat bond, having included earthquake risks in its two previous cat bond issues.

In simplifying the offering, back to parametric surge risks only, the NY MTA may elicit broader investor support and be able to build back up its cat bond coverage at this renewal of the MetroCat Re deal.

Using its Bermuda based special purpose reinsurance vehicle, MetroCat Re Ltd., the New York MTA is seeking $75 million or more in parametric named storm induced storm surge protection from the capital markets.

A $75 million single tranche of Series 2023-1 Class A notes will be sold to investors, with the proceeds to be used to fully collateralize an underlying reinsurance agreement between the issuing vehicle, MetroCat Re, and the New York MTA’s captive insurer First Mutual Transportation Assurance Co..

The captive insurer will in turn provide storm surge insurance protection on a parametric basis directly to the MTA.

It’s another example of an organisation that is not an insurance company leveraging its established captive and an SPI structure to front the capital markets for its catastrophe insurance needs, an efficient way to gain access to the coverage without the need for additional third-party fronting re/insurers sitting in between.

The New York MTA will benefit from the named storm surge insurance on a parametric trigger and per-occurrence basis, with the trigger being binary in terms of the nature of its payout, we understand.

There are two storm surge areas, which require different depths of named storm linked surge to occur for any payout to come due, with measurements taken at recognised tidal gauge water level monitoring stations around New York, we understand.

The MetroCat Re 2023-1 cat bond will cover the NY MTA for an almost three-year term, being on-risk until the end of April 2026, we’re told.

At the base case, the Metro Cat Re 2023-1 Class A notes will have a 1.337% attachment probability and expected loss and they are being offered to investors with price guidance in a range from 5.75% to 6.25%, sources said.

In order for the notes to be triggered, we understand a storm surge would have to reach 8 foot or more in depth at the first trigger area that includes The Battery, Sandy Hook and Rockaway Inlet, or 12 foot or more in depth at the second trigger area that includes Kings Point and East Creek.

Update 1:

The target size for this MetroCat Re 2023-1 parametric cat bond issuance has now been lifted, with between $75 million and $100 million of protection now sought.

At the same time, the price guidance has been narrowed towards the lower-end of initial guidance, at 5.75% to 6%.

Update 2:

The New York MTA eventually secured the upsized target of $100 million of parametric storm surge insurance protection from its latest and fourth MetroCat Re catastrophe bond deal.

The notes priced at the low-end of guidance, to pay investors a spread of 5.75%.

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