Sullivan Re Ltd. (Series 2013-1)

Towers Watson Capital Markets has arranged a private placement cat bond for a first-time sponsor and entrant to the insurance-linked securities market, the New Jersey Manufacturers Insurance Group (NJM Insurance).

Sullivan Re Ltd. Is a Bermuda domiciled special purpose insurer, registered in early July, for the purpose of issuing series of catastrophe bond notes for NJM. This first Class A tranche of Series 2013-1 cat bond notes issued by Sullivan Re came to market in July and will count towards Q3 2013 issuance figures.

The Sullivan Re cat bond provides NJM with a three-year, fully-collateralized source of reinsurance protection for a single layer of its reinsurance program. The cat bond covers 20% of a $300m xs $300m reinsurance program for NJM.

The cover provided by Sullivan Re is on a per-occurrence basis and the cat bond is structured using an indemnity trigger, linked to NJM’s losses in New Jersey and Pennsylvania.

The Sullivan Re cat bond provides New Jersey Manufacturers with protection for losses caused by physical damage resulting from named storms to certain New Jersey and Pennsylvania personal line homeowners and auto insurance portfolios over a three year duration.

The notes issued by Sullivan Re will not be listed on any stock exchange, but that doesn’t prevent them being actively, and widely traded in the secondary cat bond market. TWCM told Artemis that as with their other privately placed cat bond transactions, such as Oak Leaf Re, Sunshine Re and Skyline Re, the issued notes can be traded through TWCM itself or any other secondary cat bond brokerage.

The Sullivan Re transaction uses U.S. Treasuries for collateral, as is typical of the majority of cat bonds. The transaction priced at 3.75% above the return of the U.S. Treasuries, a slight reduction from the initial pricing guidance demonstrating the demand shown for the transaction by investors.

The Sullivan Re cat bond has been placed with a broad mix of global investors, both large and small and with differing strategies, according to TWCM. The investors self-modelled the risks of the transaction, meaning that no risk modelling costs for the transaction are passed on to the sponsor, helping to further reduce frictional costs on issuance.