The Hoplon II Insurance Ltd. lottery jackpot winnings catastrophe bond-type structure has now been successfully issued, securing the sponsor MyLotto24 a €50m collateralized source of insurance protection from the capital markets.
The Hoplon II Insurance ILS deal launched a few weeks ago, as MyLotto24 looked to cover some of its lottery jackpot winning and tax shortfall risks using a capital markets source of insurance capital. The transaction is MyLotto24′s second trip to the capital markets for this protection, following on from the 2011 Hoplon Insurance Ltd. deal, which matures in early September.
MyLotto24 will benefit from €50m of lottery jackpot protection from the two tranches of insurance-linked notes issued by Hoplon II Insurance, while an additional collateralized reinsurance layer is also being placed to extend the protection. Both the Class A and Class B tranche of notes are sized at €25m each.
The Class A notes, with an attachment point of €85m, an exhaustion point of €110m and an expected loss of 2.32%, priced at the bottom end of guidance, at 6.5%. The Class B notes, which attach at €60m, exhaust at €85m of qualifying jackpot losses, which makes them riskier with an expected loss of 5.38%, priced just below the upper end of guidance, at 12%, we understand.
Both tranches of notes also pay investors a small coupon of 1.5% up until the beginning of the first risk period in September.
The additional collateralized reinsurance layer, which Hoplon II Insurance will enter into privately alongside the ILS (or catastrophe bond) issuance to extend the protection to MyLotto24, will cover losses below the two tranches of notes, from €35m to €60m of losses.
The €50m of jackpot-winning linked notes issued by Hoplon II Insurance Ltd. have been listed on the Bermuda Stock Exchange today.
We’re still surprised that nobody has looked to emulate the Hoplon deals, either from the lottery and gambling industry or from other industries where a sudden loss of or requirement for capital could be used as a trigger for an ILS or cat bond type deal.
Transactions like Hoplon show the promise of insurance-linked securities and catastrophe bonds, to broaden their mandate and cover other risks which threaten to drain cash from potential sponsors. If it can be modelled using probability, is a binary risk against which can be set a trigger, then there is no reason that the ILS market cannot support the transfer and financing of that risk. Hoplon sets an example for the use of ILS as a contingent source of risk financing.