Alphabet, Inc., the holding company for tech giant Google and its units, has returned to the catastrophe bond market in very quick succession to add a second $95 million Phoenician Re Ltd. (Series 2020-2) transaction, clearly pleased with the pricing and execution of its first.
Alphabet had only priced its first catastrophe bond issuance, the Phoenician Re Ltd. (Series 2020-1) transaction in the last week, securing the targeted $237.5 million of California earthquake insurance protection it had sought at targeted pricing.
That first cat bond settles early next week, but we understand that Alphabet and its Google operations are so satisfied with the process of securing insurance coverage from the capital markets through a catastrophe bond that they have come back for more.
Phoenician Re Ltd., the Bermuda special purpose insurer established for Alphabet’s cat bond program, will now issue another $95 million of Series 2020-2 notes, that will be sold to investors in the cat bond market and the proceeds used to collateralize reinsurance agreements that will ultimately cascade down California earthquake insurance coverage to Alphabet and its Google entities.
As with the first Phoenician Re cat bond transaction for Alphabet, global reinsurance firm Hannover Re will enter into retrocessional agreements with the SPI, in turn providing the reinsurance cover to Alphabet’s Hawaii domiciled captive insurer Imi Assurance, who in turn provides the insurance coverage to Alphabet.
In that way, Alphabet and Google can access the benefits of efficient capital markets backed risk transfer from the insurance-linked securities (ILS) market more directly, with the coverage cascaded down in indemnity form through Hannover Re and the captive to it.
The $95 million of Phoenician Re 2020-2 Class A cat bond notes will provide Alphabet and subsidiaries with an efficient source of California earthquake insurance, across a three-year term and using an indemnity trigger on a per-occurrence basis.
This second Phoenician Re cat bond issuance will sit directly on top of the first, attaching at $1.75 billion of losses (where the 2020-1 notes exhaust) to Alphabet and covering 95% of a layer up to a $1.85 billion detachment.
As a result, the Series 2020-2 Class A notes are more risk remote, with the $95 million of notes having an initial expected loss of 0.247% and being offered to cat bond investors with price guidance in a range from 2.75% to 3%.
The Series 2020-1 notes, which have an expected loss of 0.33%, priced recently with a 3% coupon, which was the mid-point of guidance.
Seeing Alphabet return to the cat bond market so soon with a second deal that will extend its capital markets backed insurance cover is encouraging.
It suggests the tech giant was pleased with the pricing, process and execution of its first visit to the cat bond market, perhaps finding the cost of coverage so compelling that a second deal was more appealing than filling this extra slice of its quake insurance tower traditionally.
It’s a further demonstration that the catastrophe bond market is currently offering very efficient execution to sponsors, on a comparable basis with certain types of traditional insurance and reinsurance.
When it comes to large buyers of quake cover, like the global tech giants such as Google that have significant operational, infrastructure, property and people exposure in peak quake risk zones, accessing the capital markets can add a new and diversified source of coverage, as well as a way to improve the risk-adjusted pricing of their placements, by tapping into ILS investor appetite.
It’s not always possible for risk transfer buyers to secure the coverage they want and need from the traditional market alone and so some buyers look to cat bonds, or other structures.
It’s a forward-thinking route to securing the coverage they need at the right price and we expect more large corporate risk transfer buyers and risk managers will look to catastrophe bonds to fill their coverage needs in years to come.
This signal of satisfaction with the catastrophe bond market from Google’s parent Alphabet should help to further promote the use of cat bonds by large corporates.
We’ll update you as this second Google catastrophe bond comes to market. You can read all about this Phoenician Re Ltd. (Series 2020-2) transaction and every other cat bond in the Artemis Deal Directory.
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