The Jardine Lloyd Thompson Capital Markets (JLTCM) team has announced a third new privately placed catastrophe bond completion in a week, with the sixth and largest yet of the Oak Leaf Re deals, a $53.575m Oak Leaf Re Ltd. (Series 2016-1), showing the sponsors appetite for capital market reinsurance coverage.
The Oak Leaf Re series of transactions began in 2011, with the $11.1m Oak Leaf Re Ltd. (Series 2011-1), followed by the $22.78m Oak Leaf Re Ltd. (Series 2012-1), the $30,49m Oak Leaf Re Ltd. (Series 2013-1), the $44.035m Oak Leaf Re Ltd. (Series 2014-1) and last year the $53.03m Oak Leaf Re Ltd. (Series 2015-1).
So the ceding insurer, which it was learned a few years ago is Floridian primary insurer Southern Oak Insurance Company, has shown its willingness to cultivate relationships with ILS investors over six annual issuances, with each deal bigger than the last.
This year’s Oak Leaf Re cat bond features four tranches of notes, each of which will provide sponsor Southern Oak Insurance with a one-year source of fully-collateralized, capital market backed reinsurance protection for its Florida book of business on an indemnity basis. It is assumed the underlying peril is Florida named storm risk.
The four classes of Series 2016-1 notes issued by Oak Leaf Re include a multi-section tranche that provides both severity and frequency reinsurance protection, as well as a tranche specifically for reinstatement premium protection (RPP).
JLTCM has a track record for cleverly structuring these smaller cat bonds in such a way that they dovetail nicely into the ceding insurers reinsurance program, providing valuable protection, reinstatement protection, or, as in a recent Market Re deal replacement for Florida Hurricane catastrophe Fund (FHCF) coverage.
“We are pleased to return to the market with our sixth Oak Leaf deal,” commented Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets. “The cedent and the investors continue to work closely together, and we saw various classes price at the tight end of the range.”
“As a perennial issuer, Oak Leaf benefits from long term relationships. For example, we saw strong support from incumbent investors during the process,” added Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets. “Each year the process becomes increasingly efficient, allowing the participants to benefit from cost savings.”
For the sponsor Southern Oak these repeat cat bond issues keep adding value, getting larger, helping to diversify their sources of reinsurance capital, providing increasingly flexible cover in their multi-tranche structure and offering protection for reinstatement premiums.
JLTCM told Artemis that a Class A tranche provides top or drop protection, offering both frequency and severity coverage to the sponsor. Meanwhile the Class B and C tranches of notes are both private layers, which reside relatively low down in the reinsurance tower, which means they likely offer higher coupons (or premiums) to investors. Finally the Class D tranche provides the reinstatement premium protection.
The collateralized nature of the reinsurance coverage and the broad investor base that support the Oak Leaf Re series of deals demonstrate that sponsors can gain significant value from smaller cat bond deals. It’s rare to see even a $200m bond with four layers and such features, but the JLTCM team has seemingly mastered the art of ensuring private catastrophe bonds come with commensurate levels of customisation as traditional reinsurance covers can.
CEO of JLT Re North America and JLTCM, Ed Hochberg, stated; “Our clients are definitely seeing the capital markets as an integral part of their reinsurance placements. Similarly, as further evidence of the value proposition of JLT’s integrated platform, we are witnessing the expansion of the relationships between cedent and ILS investors moving beyond just the cat bond into other layers.”