U.S. insurer Chubb Group announced their first quarter results for 2012 on the 19th April and held an earnings conference call where the senior management team discussed key highlights of the last three months. One of those highlights was the successful issuance of Chubb’s fifth catastrophe bond transaction, East Lane Re V Ltd., and CFO Richard Spiro made a special reference to the deal while talking about the recent reinsurance renewals (Chubb renews a lot of their reinsurance treaties at 1st April).
Spiro said that the East Lane Re V cat bond was issued as a replacement for their maturing cat bond (East Lane Re III Ltd.) but it also expanded the cover that deal afforded them as they grew the geographic area and perils within this latest deal. East Lane Re V Ltd. secured Chubb $150m of multi-year coverage for hurricanes and severe thunderstorms in the southern states of the U.S. and Spiro said that this supplements their reinsurance program.
Spiro added that the transaction was very well received by the market and that as well as expanding the cover their maturing cat bond provided it also closed at attractive pricing relative to the expiring agreement. The latest cat bond utilises an indemnity trigger which Spiro highlighted as important to Chubb as it ensures that their right to collect is based on Chubb’s actual incurred losses as opposed to industry or index-based losses.
Spiro closed his comments on the cat bond deal by saying that Chubb enjoys the diversification that their cat bond arrangements have brought to their overall reinsurance program. Importantly, he said, they provide them with a cost-effective fully collateralized alternative to traditional reinsurance with pricing locked in for 3 or 4 years.
It’s encouraging to hear positive comments from a long-term sponsor of cat bonds like Chubb, which show that they are committed to the market and appreciate the diversity in cover that cat bonds bring to them.