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JLTCM in largest yet $70.509m Market Re 2015-2 private cat bond


As expected the Jardine Lloyd Thompson Capital Markets (JLTCM) team has announced completion of another private catastrophe bond and this new deal is the team’s largest Market Re deal to date, a $70.509m Market Re Ltd. (Series 2015-2).

The Market Re 2015-2 privately placed catastrophe bond is the largest that has been issued to date using JLTCM’s Market Re issuance vehicle, which is a joint venture with insurance-linked securities (ILS) management, servicing, transformation and fronting firm Horseshoe Group.

In fact this private cat bond deal is the second largest catastrophe bond structured and brought to market by the JLTCM team ever, with only the $100m Skyline Re Ltd. (Series 2014-1) being a larger transaction.

The $70.509m Market Re 2015-2 cat bond has been brought to market for an unknown Florida based primary insurer sponsor. The first-time sponsor is new to catastrophe bonds. The bond will provide the cedant with  a one-year source of fully-collateralized catastrophe reinsurance protection for its Florida book of business.

The reinsurance protection is for Florida named storm risks and runs for a one-year period. The deal features a single tranche of Class A notes, structured on an indemnity trigger basis, with the cat bond providing the cedant with per-occurrence protection.

Interestingly, this is the first Market Re cat bond which has been used by the cedant as a way to reduce its participation in the Florida Hurricane Catastrophe Fund. This is a trend that has been seen in 2015 as the cost of ILS risk capital has dropped below the cost of maintaining a full FHCF cover, allowing cedants to replace some FHCF cover with cat bonds or other ILS products. Market Re 2015-2 has been designed specifically to provide FHCF replacement cover.

As is typical of many private cat bonds Market Re 2015-2 has been structured as a zero coupon bond. The $70.509m of Class A notes represent $75,410,695.19 of limit, which equates to around 6.5% Net rate-on-line against this limit.

“This latest Market Re transaction demonstrates the ability to do larger transactions via the platform,” commented Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at JLTCM.

As size becomes less of an issue, the use of these platforms, which make accessing ILS capacity and issuing catastrophe bonds much simpler and more cost-effective, can be expected to become more prevalent and to play a regular part in sponsors risk transfer arrangements.

“The cedant was able to diversify its reinsurance panel and achieve a very favorable outcome. Moreover, the cat bond allowed greater participation for the investor community into the cedant’s reinsurance program,” Miller continued.

Miller also explained how cedants are using ILS coverage as a way to reduce FHCF participation; “Given the fact that the FHCF layer sits reasonably higher up in the reinsurance program, there was an opportunity to incrementally replace a pro-rata portion of the layer through a combination of private placement cat bonds, collateralized reinsurance, and traditional reinsurance.

“This transaction provides another example of the importance of close coordination between the capital markets team and the traditional brokers as the convergence Venn diagram blends further together.”

Explaining the benefits of utilising a platform like Market Re, Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at JLTCM explained; “The Market Re platform made the overall process an easy one for the cedant due to the high degree of standardization.”

“Market Re shortened the overall timeline for the cedant, which allowed them greater flexibility around risk transfer.   Given the close coordination in the program between the traditional and alternative markets, the Market Re platform helped to facilitate an overall successful execution for the client,” Popkin elaborated.

Commenting on the fact that this is the largest Market Re private cat bond deal to date, Popkin commented; “The ILS markets have welcomed and accepted the private placement technology allowing for larger deal sizes.”

Timing is key for cedants who elect to utilise catastrophe bonds or ILS capacity as a way to reduce participation in the FHCF. It’s critical that continuity of coverage is enabled, especially as the hurricane season has begun by this time.

CEO of JLT Re North America, Ed Hochberg, added; “JLT Re’s integrated platform was critical in getting this done for our client.  The close collaboration between capital markets and our traditional brokerage greatly enhanced our client’s options, with the cat bond forming part of a much larger solution.”

The Market Re Ltd. (Series 2015-2) private catastrophe bond has been added to the Artemis Deal Directory, where you can read details of every private cat bond that the JLTCM team has brought to market.

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