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Azzurro Re I, the first Euro/Italy quake indemnity cat bond launches


A new catastrophe bond has been launched which is set to become the first securitisation of earthquake risks in continental Europe on an indemnity basis. Azzurro Re I Limited is a €150m earthquake cat bond sponsored by Italian insurer UnipolSai Assicurazioni S.p.A.

There have been a few cat bonds which have securitised European earthquake risks in the past, but none have done so on an indemnity trigger basis. Also notable is the coverage region, as the Azzurro Re I cat bond covers quake risk exposures in Italy, considered perhaps the peak zone in continental Europe.

The Azzurro Re I Ltd. cat bond is being sponsored by Italian primary insurer UnipolSai Assicurazioni S.p.A., a first-time entrant to the cat bond market seeking reinsurance coverage from the capital markets in securitised form for its portfolio located across Italy.

The Italian insurer is seeking at least €150m of reinsurance protection from the issuance by Azzurro Re I, a recently registered Irish domiciled special purpose vehicle, of a single tranche of European quake risk linked notes.

The fully-collateralized reinsurance protection provided by the cat bond will protect UnipolSai against losses from earthquakes occurring in Italy, metropolitan France (but not overseas territories), Corsica, Austria, Switzerland, Slovenia and Monaco, we understand.

The focus of the protection is however on Italy, it seems, with the exposures located there as UnipolSai provides its products to insurance buyers in Italy. So it seems the reason for including surrounding countries within the covered area is to capture earthquakes that could occur in a neighboring country, but which cause losses to UnipolSai’s portfolio.

Protection will be in effect over a 3.5 year term, with maturity scheduled for January 2019. The Azzurro Re I cat bond features an indemnity trigger and will provide the sponsor with per-occurrence protection.

The single tranche of Azzurro Re I cat bond notes will cover losses from an attachment point of €500m up to an exhaustion point of €700m, perhaps suggesting the deal could upsize to €200m if investor support allows.

The notes have an attachment probability of 0.4%, an exhaustion probability of 0.22% and an expected loss of 0.31%, we’re told. That makes this a reasonably low risk cat bond.

In terms of pricing guidance, we understand that the deal will be marketed to investors with a coupon range of 2% to 2.25%, which is quite tight guidance, but it will provide a particularly high multiple which will likely help to support investors decision-making.

European earthquake risk is an extremely rare peril within the cat bond market. That means investors will likely be keen to benefit from the diversification this cat bond offers and support UnipolSai’s reinsurance needs and this cat bond could see strong demand as a result.

This interesting cat bond is being brought to market by Willis Capital Markets & Advisory, acting as sole structuring agent and bookrunner. Hannover Re and Munich Re are both co-managers. AIR Worldwide is risk modeller.

We’ll bring you further details on the Azzurro Re I Limited catastrophe bond as they become available and as it progresses to market. You can read all about it in the Artemis catastrophe bond Deal Directory.

Other catastrophe bonds that featured continental European earthquake risks include 2007’s MedQuake Ltd., a parametric quake cat bond, 2000’s Mediterranean Re plc, which covered both European wind and quake.

Turkish quake risk has also featured, thanks to 2009’s Ianus Capital Ltd. and 2013’s Bosphorus 1 Re Ltd.

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