Swiss Re Insurance-Linked Fund Management

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GC Securities on their role in Blue Danube Ltd. catastrophe bond


GC Securities, the capital markets and insurance-linked securities arm of broker Guy Carpenter, have issued a press release regarding their involvement in the recently completed Blue Danube Ltd. catastrophe bond. GC Securities acted as a joint structuring agent and joint bookrunner on the deal alongside Swiss Re Capital Markets.

The $240m Principal At-Risk Variable Rate Notes (“Series 2012-1 Notes”) sold through catastrophe bond issuer Blue Danube Ltd. will provide three-year per occurrence protection to Allianz Argos 14 GmbH, a wholly owned subsidiary of Allianz SE, against hurricanes affecting the United States (including clash hurricane events that also affect the Caribbean, Central America and Mexico) and earthquakes affecting the United States and Canada. This is interesting the way that GC Securities highlight the addition of other hurricane regions as ‘clash’ coverage. We think that what they mean here is that it’s unlikely that a hurricane hitting the Caribbean, Mexico or Central America will trigger the cat bond alone. Rather they will contribute to the index value of a storm which goes on to strike the U.S. mainland (or in reverse hits the U.S. first). This is a pretty clever way to extend the coverage provided if it is the case. This would also fit very well with the innovative trigger approach of using a modeled industry trigger transaction (MITT) structure that weights PCS losses in the covered area by modeled losses to Allianz’s notional exposure portfolio.

Cory Anger, Global Head of ILS Structuring, GC Securities, commented on the deal; “As a repeat sponsor of insurance-linked securities, Allianz continues to lead structural innovation in the ILS space. The protection from Blue Danube not only provides US hurricane protection but also factors losses caused by such same hurricane events in the Caribbean region, Central America and Mexico to best protect Allianz from all losses arising from such hurricanes. Blue Danube is also the first catastrophe bond transaction to utilize the PCS index for Canada earthquakes and will be one of the few bonds outstanding with exposure to such region. Finally, investors appreciated the thoughtful structural features of Blue Danube, including its use of IBRD puttable notes as the collateral solution, which is the first use of such a solution this year.”

Chi Hum, Global Head of ILS Distribution, GC Securities, added; “ILS investors appreciated the relative value of the MITT-triggered Blue Danube notes, as evidenced by the oversubscription and resulting deal size increase. Market participants were also keen to support Allianz, a consistent sponsor in the ILS market and sophisticated user of alternative reinsurance capacity.”

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