The succesful execution and placement of French mutual insurance society Covéa Group’s first catastrophe bond, the €90 million Hexagon Reinsurance DAC (Series 2017-1), demonstrates that it is possible to issue transactions covering lower attachment points for European perils.
The lower attaching layers of reinsurance programs covering European windstorm risks have often been assumed to be the domain of the traditional reinsurer, but the Hexagon Re transaction has shown that capital market investors are keen to assume these risks as well.
Willis Towers Watson Securities (WTWS) structured and placed the €90 million of insurance-linked securities (ILS) for France’s largest domestic P&C insurance group, Covea Mutual Insurance Group.
WTWS worked in tandem with the group’s reinsurance broker, Willis Re, in executing the transaction.
The Hexagon Re catastrophe bond has achieved a couple of firsts in the ILS market, being the first indemnity and annual aggregate structured pure European windstorm catastrophe bond, as we discussed yesterday, and also placing the lowest layers of risk into the capital markets in cat bond form for these perils.
Bill Dubinsky, Head of ILS at Willis Towers Watson Securities, commented, “We are proud to have supported Covea in its inaugural catastrophe bond transaction. Investors were eager to support the transaction. Hexagon diversifies Covea’s sources of reinsurance capacity with competitive pricing.
“This is a unique transaction as it is the first time a European catastrophe bond has supported capacity at the bottom of a traditional reinsurance program, as well as the first time a European indemnity-trigger catastrophe bond was placed on an annual aggregate basis.”
Additionally, the terms of the Hexagon Re cat bond are identical to those in the traditional reinsurance program, enabling the ILS layer to be more seamlessly integrated within the overall program and helping Covea to the €90 million of fully collateralized reinsurance protection against windstorm risks in France across a four-year period.
Alkis Tsimaratos, Managing Director of Willis Re EMEA W/S, commented on the deal, “In addition to opening up a new source of capital for Covea’s reinsurance strategy, Hexagon offers a stable multiyear commitment at attractive terms, in the middle of a challenging renewal market, marked by future price uncertainties. The transaction also demonstrates that attachment levels usually reserved for traditional structures in Europe are equally attracting catastrophe bond investors.”
In recent years the lower layers of European reinsurance programs have been the sole domain of traditional reinsurers and a few collateralized reinsurers, with the catastrophe bond market only taking the higher and more remote tranches of risk.
The succesful completion of the Hexagon Re catastrophe bond shows that these lower positioned, higher risk layers are attractive to catastrophe bond investors and therefore we could see more European cedents looking to the cat bond markets for reinsurance as a result.
Join us in New York in February 2018 for our next ILS conference