Power Protective Re Ltd. (Series 2020-1)

The Artemis Catastrophe Bond and Insurance-linked Securities Deal Directory aims to provide a one-stop resource for information on every cat bond and ILS transaction we hold information on. The content of this Deal Directory is provided as is and there will be some omissions. Help us to keep these cat bond and ILS transaction summaries up to date by contacting us if you see an error or omission that you can correct.

Share

Power Protective Re Ltd. (Series 2020-1) – At a glance:

  • Issuer: Power Protective Re Ltd.
  • Cedent / sponsor: Los Angeles Department of Water & Power
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: EQECAT Inc.
  • Risks / perils covered: California wildfire
  • Size: $50m
  • Trigger type: Parametric
  • Ratings: NR
  • Date of issue: Dec 2020

Power Protective Re Ltd. (Series 2020-1) – Full details:

Power Protective Re 2020-1 is the first wildfire catastrophe bond issuance to benefit a municipal utility.

The Los Angeles Department of Water and Power (LADWP) is the largest municipal utility operating in the United States.

The Los Angeles Department of Water and Power (LADWP) serves more than four million residents and has been in operation since 1902 to supply water to homeowners and businesses in Los Angeles and the surrounding communities.

The municipal utility is seeking to secure catastrophe insurance coverage against wildfire risks in the region of California where it operates, as its infrastructure is exposed to wildfires. But its infrastructure could also ignite wildfires, so presumably there is an element of wildfire liability protection as one of the driving motives for this visit to the capital markets.

The municipal utility is seeking to secure catastrophe insurance coverage against wildfire risks in the region of California where it operates, as its infrastructure is exposed to wildfires.

But its infrastructure could also ignite wildfires, so presumably there is an element of wildfire liability protection as one of the driving motives for this visit to the capital markets.

The utility will get its insurance through an agreement with a protected cell of Aon’s Vermont-based White Rock cell captive vehicle, we understand.

Global reinsurance firm Hannover Re will reinsure the risks for White Rock and is set to interface with the capital markets, fronting the wildfire risks for the LA municipal water utility via a retrocessional reinsurance agreement with newly formed special purpose insurer (SPI) named Power Protective Re Ltd. we understand.

Power Protective Re Ltd. will issue a single tranche of Series 2020-1 notes, targeting $50 million of protection, which will be sold to cat bond investors and the proceeds used to collateralize the retro agreement with Hannover Re.

Hence, the coverage capitalised by the cat bond issuance is cascaded back to the municipal water utility with the assistance of Hannover Re and the White Rock vehicle, enabling the Los Angeles Department of Water and Power (LADWP) to benefit from the capital markets appetite for catastrophe insurance risk.

The notes will cover wildfire risk in a covered area within a region of California where the utility operates.

Coverage is on a parametric trigger basis, with a novel trigger construction based on reconstruction cost values within a wildfire perimeter, using data from EQECAT’s RCV database for wildfire risk.

We understand that the cat bond will feature a stepped payout mechanism attached to this parametric trigger, being able to payout 35%, 70% or 100% of its principal depending on the severity of the wildfire event.

The term of coverage will be three years, with maturity slated for December 8th 2023, we’re told.

The risk has been modelled using two scenarios for wildfire risk, an average level of fire risk and a high level, which is to factor in drier years where California wildfire risk can be elevated.

As a result, the notes come with two modelled expected loss numbers, we understand, of 0.63% annualised for average fire risk and 0.74% when modelled on a high fire risk basis.

With a parametric trigger based on a specific covered area of California and able to be activated by covered events burn perimeter’s impacting a certain level of reconstruction cost values from the EQECAT database, it seems like this structure is one that investors should be able to analyse themselves and make informed assumptions regarding the pricing they would need to assume this risk in catastrophe bond form.

The currently $50 million of notes to be issued by Power Protective Re Ltd. are being offered to cat bond investors with coupon price guidance in a range from 9.5% to 10.25%, we understand.

———————————————————————
Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

« Go back to the Catastrophe Bond Deal Directory

Help us keep this valuable resource up to date. If you have information on a catastrophe bond or insurance-linked security deal we have not covered or can see something that we should change, please contact us to let us know.