The recent successful issuance of the $164.5 million Buffalo Re Ltd. (Series 2017-1) catastrophe bond has been hailed by the sponsor, Lloyd’s of London ICAT Syndicate 4242, as “seamlessly” fitting within its overall reinsurance strategy.
ICAT Syndicate 4242 is the first Lloyd’s syndicate since 2002 to act as sole sponsor of a catastrophe bond, a big step for the ICAT group with its first cat bond issue.
ICAT is not unfamiliar with the capital markets, ILS investors and collateralised reinsurance though, having utilised ILS backed capacity within its reinsurance program for many years.
The Buffalo Re 2017-1 cat bond sits as part of ICAT’s overall reinsurance program, which renews at the 1st April. Note, Buffalo Re has been named due to the Colorado (where ICAT is headquartered) sports team of the same name (hence the image).
Securing the cat bond early, as a source of indemnity reinsurance coverage for U.S. named storms and earthquake risks, will have provided the syndicate with clear visibility of market pricing and conditions, something that benefits cat bond sponsors who bring a deal to market just prior to their traditional reinsurance placements.
ICAT is pleased with the response of the ILS market and cat bond investors, helping it to secure a $164.5 million chunk of its overall $745 million excess $40 million catastrophe reinsurance program.
Of course the Buffalo Re cat bond is a three-year deal, which provides ICAT with certainty on that portion of its reinsurance protection.
Megan McConnell, Active Underwriter for ICAT Syndicate 4242, commented on the successful cat bond experience; “We are incredibly excited to have completed our first cat bond and to have received such a warm reception from the capital markets. Notwithstanding our already extensive relationships with capital providers, this transaction offers the syndicate additional sources of capacity and fits seamlessly within our overall reinsurance strategy.”
The importance of that cannot be understated. In the past cat bonds were often seen as difficult to fit into a reinsurance program, but the latest structuring methods mean that coverage can be seamlessly matched, making it much easier for a new sponsor to adopt cat bonds within their program’s.
The Buffalo Re 2017-1 cat bond provides two layers of coverage, with one tranche inuring to the benefit of the other, to provide cascading coverage for multiple events.
ICAT Syndicate 4242 worked with Willis Capital Markets & Advisory (WCMA) on the deal to bring the Buffalo Re cat bond to market.
“We are proud to have partnered with Willis Capital Markets & Advisory and their high level of expertise and professionalism has been vital to the successful execution of the transaction,” McConnell said.
Brad Livingston, Vice President of ILS for WCMA, added; “WCMA is proud to have supported ICAT Syndicate 4242 in its inaugural catastrophe bond transaction. Syndicate 4242 has been one of the best performing syndicates over the past ten years and ICAT has a reputation for best in class catastrophe underwriting in the SME market segment.”
Livingston explained that the response of the ILS investor community to this new sponsor of cat bonds was good, helped no doubt by demand in the market at this time and evidenced by the fact the transaction upsized during the marketing process, while pricing declined to offer a very cost-effective coverage for ICAT.
“Investors were eager to support the business through Buffalo Re. Buffalo Re provides the syndicate fully collateralized capacity at attractive, stable pricing. We are pleased with the efficiency of the process, not only in minimizing transaction expenses but also in compressing the execution timeline to close in advance of the syndicate’s core reinsurance renewal process. Buffalo Re highlights the benefits and continued ease of execution of fully distributed 144A transactions,” he continued.