Alphabet (Google) targets $250m+ third quake catastrophe bond

Google’s holding company parent Alphabet, Inc. has returned to the catastrophe bond market for the third time, as it seeks to add another $250 million or more of California earthquake risk protection to its insurance arrangements with the help of insurance-linked securities (ILS) investors in a Phoenician Re Ltd. (Series 2021-1) issuance.

This is going to be the third issuance of a series of catastrophe bond notes with Alphabet Inc. as the sponsor, as it looks to protect its assets, physical property and people, against earthquake risks in California.

The first Google catastrophe bond issuance, the Phoenician Re Ltd. (Series 2020-1)  transaction in early December 2020, secured the company $237.5 million of California earthquake insurance protection.

It was quickly followed with the second Google catastrophe bond, a $95 million Phoenician Re Ltd. (Series 2020-2) transaction that expanded the same insurance coverage layer for the tech giant.

This third Phoenician Re Ltd. catastrophe bond sees Alphabet Inc. returning to secure additional California earthquake insurance protection for its businesses, including Google’s operations.

This new cat bond deal sees Alphabet Inc. looking to bring insurance-linked securities (ILS) investors and the capital markets more deeply into its earthquake insurance tower, with this latest series of notes set to build out the capital market and ILS fund backed coverage the company has received from its first two series of Phoenician Re notes.

Sources told Artemis that Google is back in the market this week, with its Phoenician Re Ltd. Bermuda-based special purpose insurer targeting issuance of an at least $250 million Series 2021-1  tranche of notes.

This single tranche of notes will be sold to catastrophe bond investors and the proceeds used to collateralize reinsurance agreements that will ultimately cascade down to provide California earthquake insurance coverage to Alphabet and its Google entities.

As with the first two Phoenician Re cat bond issues for Alphabet, global reinsurance company Hannover Re is again fronting and transforming the risk for the tech giant and will enter into retrocessional agreements with the SPI Phoenician Re, then into reinsurance agreements with Alphabet’s Hawaii domiciled captive insurer Imi Assurance, which in turn will provide the insurance protection to Alphabet.

In this way Alphabet and Google can access the capital markets for insurance capacity in an efficient manner, with the global reinsurance company facilitating the transfer of risk to cat bond investors for them.

The $250 million or more of Series 2021-1 notes that Phoenician Re Ltd. issues will provide Alphabet and its Google operations with a three year source of California earthquake insurance protection, on a per-occurrence basis and using an indemnity trigger, we understand.

We’re told that the single Class A tranche of notes will cover losses from an attachment point of $1.5 billion for Alphabet and exhaust at $1.9 billion, which leaves room for the deal to upsize if necessary.

However, these notes will sit alongside and wrap around the earlier Phoenician Re cat bond issues, as the first issuance attached at $1.5 billion of losses to Alphabet with exhaustion of the coverage at $1.75 billion and the second smaller issue attached at $1.75 billion, so sitting on top and covering losses up to a $1.85 billion detachment.

Meaning the new Series 2021-1 cat bond sees Alphabet and Google filling in around the same layers of its tower, suggesting this is an area of the insurance program where earthquake protection is deemed efficient from the capital markets.

The $250 million or more of Series 2021-1 Class A notes that Phoenician Re is marketing to investors have an initial expected loss of 0.51% and are being offered to cat bond investors with price guidance in a range from 2.25% to 2.75%, we’re told.

It’s a far tighter price target than the previous cat bonds for Google, as the 2020-1 issuance priced at 3% for its expected loss of 0.33% and the 2020-2 cat bond priced at 2.9% for an initial expected loss of 0.247%.

So the price target is far more aggressive with this new catastrophe bond for Alphabet and Google, which will reflect softening of cat bond pricing through 2021 and is close to previous low-levels with where California earthquake risk has priced in the past in the cat bond market.

It’s encouraging to see Alphabet and Google back in the catastrophe bond market and looking to expand on the capital markets backed insurance protection it receives from these transactions.

There’s plenty of scope for more major tech-firms to look to cat bonds to fill some of the more challenges layers of their insurance towers, where peak catastrophe perils feature and we expect more will look to do so over the coming years.

You can read all about this new Google catastrophe bond, the Phoenician Re Ltd. (Series 2021-1) transaction alongside every other cat bond deal ever issued in the Artemis Deal Directory.