The first catastrophe bond to be sponsored directly for the benefit of Alphabet, Inc., the holding company for Google and its many units, has now been priced on-target at the mid-point of guidance, while the Phoenician Re Ltd. (Series 2020-1) cat bond transaction will close at the same $237.5 million size it launched at.
Alphabet, which acts as a holding company for all of the Google tech operations, entered the catastrophe bond market for the first time earlier this month, seeking a capital markets backed solution to secure more earthquake insurance protection for its assets in the state of California.
The technology giants, such as Google, Amazon, Facebook and Microsoft, among others, all carry significant exposure to catastrophe, severe weather and climate risks on their books.
Often securing the necessary insurance and reinsurance capacity in an efficient manner to support their risk transfer needs is not easy, which has been driving these tech giants to increasingly look to the insurance-linked securities (ILS) market as a potential source of efficient capacity to support their insurance needs.
It’s a natural step for companies so focused on innovation and efficiency, while also allowing them to benefit from bypassing chunks of the traditional risk transfer value-chain as well.
In Google’s case, or Alphabet’s, the company has used its captive insurer to access the ILS market more efficiently and secure this catastrophe bond, which now being successfully priced at the target size and pricing, is on track to closing in early December.
Special purpose insurer (SPI) Phoenician Re Ltd. will issue $237.5 million of cat bond notes to investors, with the proceeds used to collateralize retrocessional reinsurance agreements with fronting reinsurer Hannover Re.
Hannover Re will in turn enter into a reinsurance agreement with Imi Assurance Inc., Google’s Hawaii domiciled captive insurance company.
Alphabet Inc. and subsidiary Google, ultimately the insurance coverage directly from its captive, but the catastrophe bond enables the company to benefit from the efficiency of global capital markets and take some chunks out of the value-chain in the process, to deliver the coverage more directly to it.
The single $237.5 million tranche of Series 2020-1 Class A notes that Phoenician Re Ltd. will issue are set to provide Alphabet with a source of California earthquake insurance protection, cascaded down using the reinsurance agreements, through its captive insurer and Hannover Re, across a three-year term.
The Phoenician Re 2020-1 cat bond notes will have an initial expected loss of 0.333%, with an attachment point fixed at $1.5 billion of losses to Alphabet from any California earthquake event, while exhaustion of the coverage is at $1.75 billion.
The notes feature an indemnity trigger and coverage is on a per-occurrence basis for all of Alphabet’s subsidiaries and both physical and personal property exposures.
The catastrophe bond has not increased in size and the target set by Alphabet, of $237.5 million of coverage across a $250 million layer of risk has been fully-secured.
While the notes, which were first marketed to catastrophe bond investors and funds with a coupon guidance range from 2.75% to 3.25%, have now been successfully priced on-target at the mid-point, and will pay investors a 3% coupon.
It’s always encouraging to see a corporate catastrophe bond successfully issued within the targeted bounds for size and pricing and in this case it’s particularly encouraging given the profile of the sponsor.
Google has clearly taken to the cat bond market as a way to improve its own insurance program terms and coverage, likely either to secure capacity it couldn’t get elsewhere, to diversify its risk capital sources as its program has grown so large, or because the terms are more attractive in the capital markets.
This could attract other large corporate risk transfer buyers and it is to be hopped the example set reads across to the other tech giants and beyond, as they look to better protect their assets and people against natural catastrophes, severe weather and climate linked events.