Swiss Re Insurance-Linked Fund Management

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Argo Group hails completion of first catastrophe bond


Argo Group have issued a press release relating to the recent completion of their first catastrophe bond issuance through their Loma Reinsurance Ltd. Cayman Islands SPV. The $100m cat bond, issued in a single tranche, provides Argo Re with cover against certain U.S. hurricanes and earthquakes, European windstorms and Japanese earthquakes. Full details on the transaction can be found in our Deal Directory.

The press release shows that Argo were seeking a way to lock in a source of reinsurance cover at a reasonable price during a time when reinsurance rates are rising for some peak perils and they seem pleased to have achieved that with this cat bond. Their press release says that the deal protects the Argo Group from frequency of catastrophe losses and “allows the group to further capitalize on market opportunities and efficiently replaces capital otherwise needed to support the risk of frequent and sizable events”.

At the start of the year we heard rumours of other first time issuers wanting to test out cat bond issuance but many have been deterred by the uncertainty that followed the events in Japan. Seeing Argo Group successfully issue this multi-peril, multi-continent cat bond may help to encourage first time issuers to enter the market.

The full press release from Argo follows below:

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Argo Group Completes Issuance of a $100 Million Catastrophe Bond

HAMILTON, Bermuda, Jun 20, 2011 —

Argo Group International Holdings, Ltd. (NasdaqGS: AGII), an international underwriter of specialty insurance and reinsurance products, announced today it has successfully placed a new catastrophe bond, Loma Reinsurance Capital Limited Series 2011-1, which will provide $100 million of protection against the multiple occurrence of certain named perils.

Coverage provided by the bond incepts June 17, 2011, and runs for a period of 18 months. The bond provides protection against the occurrence of two or more U.S. hurricanes, U.S. earthquakes, European windstorms, or Japan earthquakes. For activation the bond establishes per occurrence minimum loss amounts and is triggered by a second and subsequent event that meets specific loss criteria.

This is Argo Group’s first bond issuance in the Insurance Linked Securities (ILS) market. The protection afforded under the bond protects the group from frequency of catastrophe losses, allows the group to further capitalize on market opportunities and efficiently replaces capital otherwise needed to support the risk of frequent and sizable events. The bond has been rated “BB-” by Standard & Poor’s.

Argo Group CEO Mark E. Watson III said, “The timing was right for Argo to enter the ILS market. With increased demand for our products and potentially increasing prices for the reinsurance protection we purchase, this bond will allow us to pursue our underwriting strategies, taking advantage of the market opportunities, knowing that the risk to the Group is substantially reduced.”

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