The health of the insurance-linked securities (ILS) market and the commitment of its investors to providing efficient and fully collateralized reinsurance capacity were displayed by the successful upsizing and completion of the California Earthquake Authority’s (CEA) latest catastrophe bond, according to Swiss Re Capital Markets.
The CEA’s recently completed Ursa Re II Ltd. (Series 2020-1) catastrophe bond transaction more than tripled in size to $775 million while marketing, thanks to effective execution and abundant investor demand. More details on the transaction can be found in our extensive catastrophe bond Deal Directory.
Swiss Re Capital Markets successfully structured and placed the cat bond issuance as its bookrunner, helping the CEA which protects more than one million policyholders in California against earthquakes to underpin its claims paying ability with reinsurance capacity from the global capital markets.
The largest catastrophe bond issuance of 2020, the CEA’s transformer structure Ursa Re is also the largest such program of issues in the history of the ILS market, Swiss Re Capital Markets, a division of the global reinsurance firm, explained.
The CEA has maintained its position as one of the largest sponsors of cat bonds in the market with this new deal, as it now has $2.525 billion of cat bond backed reinsurance outstanding, according to our chart detailing the full-range of sponsors in the marketplace.
“Swiss Re’s mission as a company is to make the world more resilient. We’re delighted to partner with CEA which has been helping to protect Californians from the financial consequences of earthquakes for almost 25 years,” explained Jonathan Isherwood, Swiss Re’s CEO Reinsurance Americas and Regional President.
“Only around 13% of Californians who purchase residential insurance also have earthquake protection. It’s not a matter of if, but when, the next one strikes. This transaction supports CEA’s ability to extend financial protection to a greater number of California residents who are highly exposed to earthquakes.”
To secure the coverage, the CEA entered into two reinsurance agreements with Swiss Re, who, acting as a transformer, transferred the underlying earthquake risk through two retrocession agreements to special purpose issuer Ursa Re II Ltd.
As a result, the CEA now benefits from an additional $775 million of protection on an annual aggregate, indemnity basis, against residential property earthquake damage in California.
Swiss Re Capital Markets underwrote the transaction through the two classes of principal-at-risk variable rate notes that were issued by Ursa Re II Ltd. and sold to ILS market investors.
Ursa Re II Ltd. collateralized its liabilities under the retrocession agreements through the issuance and sale of $425 million Class AA Notes and $350 million Class D Notes to the investors, with both classes of notes having three risk periods starting 17 October 2020 and ending 30 November 2023.
The deal hit the market seeking just $250 million of protection for the CEA across the two tranches, but abundant investor demand helped the cat bond more than triple in size by its closing, as we documented over recent weeks.
“Swiss Re is pleased to provide continued support to CEA. Despite uncertainty around COVID-19, the transaction was well received by investors, ultimately allowing the issuance size to more than triple from the initial guidance,” commented Jean-Louis Monnier, Head of Retro & ILS Structuring at Swiss Re Capital Markets.
“This was the largest catastrophe bond issuance in 2020 thus far and its success clearly displays the health of the ILS market and investors’ commitment to providing efficient collateralized capacity where most required.”