Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Bosphorus 1 Re Turkish earthquake catastrophe bond comes to market


A new catastrophe bond has been presented to insurance-linked securities (ILS) investors and it will bring some welcome diversification to the market after the focus on U.S. perils in the 2013 cat bonds we’ve seen so far. This deal brings a rare peril to the market, Turkish earthquake risk. The cat bond is being issued by Bosphorus 1 Re Ltd. and it is seeking a source of multi-year earthquake reinsurance protection for the Turkish Catastrophe Insurance Pool (TCIP).

Bosphorus 1 Re Ltd. is a Bermuda domiciled special purpose insurer, registered on the island on the 11th January 2013. That means this transaction has been in the making for over two months before it came to market, common when a cat bond features a new sponsor or beneficiary of the cover, or one who doesn’t participate in transactions very regularly. It is often much quicker to get a deal to market when the groundwork of establishing SPI and partner relationships have been completed before.

The Turkish Catastrophe Insurance Pool (TCIP) has been a beneficiary of a cat bond before, the only other cat bond we know that included Turkish earthquake risks, Ianus Capital Ltd. That deal, from 2009, was actually sponsored by Munich Re but the Turkish quake portion of the deal was to protect a reinsurance agreement between Munich Re and the TCIP. The Ianus Capital cat bond matures in early June 2013 so it makes sense that the Bosphorus 1 Re cat bond will seek to replace the cover it provided.

Bosphorus 1 Re Ltd. will seek to issue a $100m tranche of catastrophe bond notes to provide a multi-year source of fully-collateralized reinsurance protection to the TCIP, over a three-year term on a per-occurrence basis. We understand that the transaction will use a parametric trigger meaning that the cat bond would be triggered by actual earthquake measurements and ground movement, another rarity in the cat bond market in recent months, with the risk modelling provided by RMS.

Sources tell us that the deal is relatively low risk, likely just seeking protection for the very largest, and rarest, earthquakes that Turkey can suffer. We understand that the notes have an attachment probability of 1.1%, an exhaustion probability of 0.91% and an expected loss of 1.01%. The notes are being marketed with a coupon pricing range of 2.75% to 3.25%.

It’s good to see a diversification opportunity coming to market. Bosphorus 1 Re Ltd. offers investors a chance to acquire some much-needed, non-U.S., diversification within their portfolios and as such will likely be well received and in demand.

We hope to be able to bring you more details on the parametric trigger this deal features in the coming days. We’ll update you as it comes to market and you can read all about Bosphorus 1 Re Ltd. in our Deal Directory.

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