French reinsurer SCOR has announced that the net losses attributable to catastrophes during Q1 2011 have reached a sufficiently high level to trigger a payment under the terms of their natural catastrophe contingent capital facility (which we first wrote about last September). As a result SCOR have issued a €75m drawdown notice under the contingent capital facility which was put in place at the end of 2010.
The innovative facility was put in place last December in a deal arranged by Swiss banking group UBS. It allowed SCOR to diversify away from a reliance on retrocession and provided them with another source of predictable reinsurance type cover which would be triggered based on the volume of losses they were exposed to.
The facility allows for automatic share issues when the aggregate amount of losses from natural catastrophes breach a pre-defined level. SCOR then becomes the beneficiary of the proceeds of the share issue, providing a source of cover linked to their losses. SCOR maintain than the facility offers a competitive alternative to reinsurance and it does seem a sensible way to diversify your sources of retrocessional reinsurance cover.
SCOR say that based on the information now received about Q1 catastrophes they will book a sufficiently large loss in their Q2 accounts to reach the threshold for activating the contingent capital.
Under the terms of the contingent capital facility, UBS will now exercise the number of warrants required for the issuance and subscription of €75m of new SCOR shares. The shares will be immediately listed on the Euronext Paris exchange and become available for investors.
The way this facility has been structured as an event-driven guaranteed equity facility perfectly complements retrocession and other reinsurance cover SCOR has through their Atlas series of catastrophe bonds. By cleverly structuring this kind of facility alongside their other sources of multi-year reinsurance it’s possible to ensure a much greater level of coverage and also a much more liquid source of cover with much speedier payout.