The new $85m private catastrophe bond, or cat bond lite, transaction Resilience Re Ltd. (Series 1642B), which was issued using the platform owned by broker Willis Towers Watson, does feature California earthquake risk sourced from the California Earthquake Authority (CEA).
As we explained in our article on this private cat bond yesterday, there was a good chance that the latest Resilience Re deal would feature risk from the CEA’s April reinsurance renewal, particularly as the first issuance from the platform, the $57m Resilience Re Ltd. (Series 15121A), was a transformed collateralised reinsurance contract featuring CEA risk.
Now we can reveal that to have been the case again with this new Series 1642B private cat bond, as Willis Towers Watson has used its platform to transform the $85m slug of the CEA’s reinsurance renewal for ILS investors who were seeking the liquidity of a securitised cat bond asset.
The $85m Resilience Re Ltd. (Series 1642B) private cat bond transaction was not sponsored by the CEA however. Rather the CEA was simply passive in this transaction and it was transacted for the ILS investors, likely established cat bond fund managers, to enable them to participate in the CEA’s reinsurance renewal on a collateralised basis.
A CEA spokesperson explained that the organisation had entered into a collateralised reinsurance contract with Resilience Re as part of its recent April renewal, but that the decision to transform the risk and issue a catastrophe bond was down to Willis and the investors.
In this way, Willis was able to both meet the CEA’s needs and desire for more collateralised reinsurance coverage within its renewal, while also providing the ILS investors with an asset that will have secondary liquidity.
Transactions such as this, using a private cat bond platform to transform collateralised reinsurance contracts, are an effective way for catastrophe bond investors to be able to participate in reinsurance renewals, thus further broadening the panel of reinsurers for a cedent like the CEA, without the need to go through a full-blown 144A catastrophe bond issuance.
There are a number of pure catastrophe bond funds which would otherwise be unable to participate in renewals, such as the CEA’s, unless cat bond is issued. It would also be suitable for some large pension funds or fixed income investors, who can have mandates to only invest in securitised assets with secondary liquidity.
The CEA told Artemis recently that issuing a full catastrophe bond is hard to justify given the low-cost of reinsurance coverage for California earthquake risks right now, but that it has a desire to maintain and grow its relationships with ILS and collateralised markets.
These Resilience Re transactions are helping the CEA to achieve this, without the need to be involved in the transaction. Enabling it to simply complete its reinsurance renewal and then leave the broker and investors to decide whether to transform the risk into a private cat bond.
You can read all about this Resilience Re Ltd. (Series 1642B) private cat bond transaction and every other catastrophe bond in the Artemis Deal Directory.
– $85m private Resilience Re cat bond completed on Willis platform.
– CEA reinsurance program nears $4.5bn, but cat bonds hard to justify.
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