Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Green Fields II Capital is largest European windstorm cat bond ever


The Green Fields II Capital Ltd. (Series 2013-1) catastrophe bond which completed, was rated and listed in Ireland recently, now holds the title for being the largest European windstorm focused catastrophe bond issuance in the history of the market. At €280m in size Green Fields II Capital just beats 2010’s €275m Calypso Capital to the title.

In a press release published this morning, reinsurer Swiss Re hailed its successful arrangement of the issuance of €280 million of insurance-linked securities by Green Fields II Capital Limited (“Green Fields II”) on behalf of Groupama S.A. Swiss Re Capital Markets acted as sole arrange of the deal and underwrote the cat bond transaction which covers French windstorm losses for Groupama over a three and a half-year risk-period.

The proceeds of the sale of the notes issued by Green Fields II Capital are used to collateralize a counterparty contract with Swiss Reinsurance Company Ltd. The contract provides per-occurrence protection against windstorm losses in France using an index from PERILS AG. Swiss Re has, in turn, entered into a reinsurance with Groupama to provide it with protection against French windstorms. So the ultimate beneficiary of the deal if Groupama’s book of business.

Jean-Louis Monnier, Director and Head of ILS Europe at Swiss Re Capital Markets, commented; “We are pleased to support Groupama’s access to the capital markets by closing this landmark transaction. Swiss Re is the counterparty to the special purpose vehicle and in turn provides Groupama with a cover which combines the benefits of reinsurance and cat bond collateralization. As the largest Europe windstorm transaction and largest Euro-denominated deal to date, this issuance further demonstrates the depth of the ILS market and its ability to complement reinsurance for European perils.”

For Groupama the price achieved on the transaction is another important factor. The French insurer hailed the ‘historically low coupon of 2.75%’ in a press release published this morning. The insurer said that the €280m of French windstorm reinsurance protection provided by this latest cat bond supplements the cover provided by its 2010 Green Fields Capital Ltd. cat bond.

“This issue once again demonstrates the Group’s ability to seize market opportunities to optimise its reinsurance protections under very satisfactory conditions,” said Christian Collin, Deputy Chief Executive Officer of Groupama SA.

The success of this cat bond for Groupama has likely reduced its risk transfer costs this year and the insurer clearly sees the value that the cat bond market can offer it. Collin added;  “We are pleased with the success, beyond our expectations, of this fourth cat bond, which encourages us to have a regular presence in this type of market.”

Despite this being the largest European windstorm catastrophe bond on record, the actual amount of European wind risk in the outstanding cat bond market is not as high as it was in previous years. The extremely low spreads on European wind risk has been off-putting for some investors who felt last year that the return was not comensurate with the risk anymore.

The fact we haven’t seen a major European windstorm loss event for a few years now, the last billion Euro plus loss was in February 2010 with Xynthia, has helped to drive spreads down on European wind risk to a point where it has been harder to issue deals. That makes the success of this deal all the more encouraging and it shows that the cat bond and ILS investor market needs the diversifier that European wind risk offers.

Perhaps the fact that spreads have now come down considerably on other perils in the cat bond market will mean that investors renew their appetite for European windstorm risks and we see more of this peril in new cat bonds over the coming months.

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