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Investors welcomed subrogation feature of Topanga Re cat bond: Swiss Re’s Monnier


According to Jean-Louis Monnier, head of retrocession & ILS structuring at Swiss Re Capital Markets, an “innovative subrogation extension mechanism” that featured in Farmers Insurance Group’s $160 million Topanga Re Ltd. (Series 2021-1) catastrophe bond issuance was welcomed by investors.

jean-louis-monnier-swiss-reFarmers today hailed the completion of its first catastrophe bond, which was completed with the support of the global reinsurance firm’s insurance-linked securities (ILS) focused unit, Swiss Re Capital Markets, as well as TigerRisk Capital Partners.

As we’d explained ten days ago, the Topanga Re 2021-1 catastrophe bond was successfully upsized to provide Zurich-linked insurer Farmers with $160 million of multi-year collateralized reinsurance protection, while the notes priced to pay investors a coupon at the top-end of initial guidance.

Today, Farmers hailed the cat bond’s successful closing and said it had been specially “designed to integrate into Farmers’ existing traditional catastrophe reinsurance program.”

There are two Series 2021-1 tranches of notes under the first Topanga Re catastrophe bond issuance, $100 million of Series 2021-1 Class A Notes and $60 million of Series 2021-1 Class B Notes.

The Class A Notes provide Farmers with four years of per-occurrence reinsurance protection and the Class B Notes offer two years of annual aggregate protection, with both Classes providing protection against the perils of U.S. named storms, earthquakes, severe weather and fire.

“Farmers is pleased to access the capital markets via this catastrophe bond issuance which allows us to diversify our capital sources by distributing different levels of risk,” explained Thomas Noh, chief financial officer of Farmers Insurance Exchange.

Adding that, “Obtaining multi-year collateralized capacity from Topanga Re is an important addition to our risk management strategy.”

Jean-Louis Monnier, head of retro & ILS structuring at Swiss Re Capital Markets added that, “Swiss Re is proud to have advised Farmers in structuring and placing its first-ever catastrophe bond. ”

He further explained an important structural feature of the Topanga Re catastrophe bond, that made the reinsurance coverage a better fit for Farmers needs, which he said improved the mechanics by which investors are able to benefit from subrogation recoveries.

“Investors welcomed the innovative subrogation extension mechanism as it better aligns potential ILS recoveries with those of traditional reinsurance. This innovation was essential to allow Farmers to efficiently complement its per-occurrence and aggregate reinsurance programs with an ILS issuance,” Monnier said.

Swiss Re Capital Markets was joint structuring agent and sole bookrunner for the Topanga Re 2021-1 cat bond issuance.

TigerRisk Capital Markets & Advisory acted as joint structuring agent and co-manager and Philipp Kusche, global head of ILS and capital solutions said, “TigerRisk is delighted to have supported Farmers in its inaugural catastrophe bond transaction expanding their risk transfer options further.

“We were pleased to advise in the establishment of Topanga Re which provides Farmers comprehensive reinsurance coverage on a per-occurrence and aggregate basis.”

Innovating new structural features is key to keep catastrophe bond coverage as comparable as traditional reinsurance or retrocession as possible.

Subrogation clauses have differed in the past, particularly after the California wildfires and investors lacked the clarity over how exactly some cat bond issues might deliver subrogation benefits, or if they would at all.

By clarifying subrogation related terms and how that would extend, as subrogation cases can take time to resolve, the investors are put on a more level playing field with the reinsurers backing Farmers program.

You can read all about this new Topanga Re Ltd. (Series 2021-1) catastrophe bond and every other cat bond ever issued in the comprehensive Artemis Deal Directory.

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