Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Johnston Re Ltd. now affords North Carolina $507m of catastrophe bond cover


The recently closed Johnston Re Ltd. Series 2011-1 catastrophe bond transaction has helped bring the amount of capital market cover for hurricanes afforded to the two North Carolina non-profit insurance associations, the North Carolina Joint Underwriters Assn. (NCJUA) and the North Carolina Insurance Underwriters Assn. (NCIUA) to $507m.

The recent transaction secured close to $202m in protection for the associations which when added to the Johnston Re 2010 deal from last year gives them a sizeable amount of collateralized, multi-year hurricane reinsurance protection on a per-occurrence basis. It’s encouraging to see this deal repeated and it is actually the third deal in as many years which has afforded these associations with cat bond cover, after Swiss Re issued the $200m Parkton Re deal in 2009 (which matured just recently).

Could the repeat issuance help to attract other underwriting and windstorm associations to seek similar capital markets cover? Possibly, although we haven’t heard of anything in the pipeline at this stage.

Munich Re were joint lead-manager for the recent Johnston Re transaction and their Munich Re America arm underwrites the actual risk associated with the deal by entering into a retrocessional agreement with the two underwriting associations. So while Munich Re reinsure the associations the protection is actually provided by the capital markets.

Tony Kuczinski, President and CEO of Munich Re America said in a press release: “With the Johnston Re transaction, we have succeeded – as we did last year – in obtaining for a major US client additional coverage for hurricane risks in the capital markets. The transaction again underlines the role of the capital markets as an additional capacity provider for peak risks such as hurricane risks in North Carolina”

Guy Carpenter investment banking subsidiary GC Securities acted as sole bookrunner and co-lead manager on the transaction. Here’s some quotes taken from their press release regarding the transaction.

Steve Carroll, Chairman of the NC JUA/IUA and Member Company Board Representative, Executive Vice President and General Manager of NC Farm Bureau Mutual Insurance Co., Inc., stated, “The consistency and competitiveness of capital markets capacity that the NC JUA/IUA has been able to access for the third year in a row demonstrates one aspect of the flexibility and strength of the NC JUA/IUA’s hurricane loss financing program. Maintaining strong claims-paying ability for our policyholders in the event of a major hurricane while also lessening the post-event financial impact to member insurers and statewide policyholders is an important attribute of the NC JUA/IUA’s hurricane loss financing program.”

Cory Anger, Global Head of ILS Structuring, GC Securities, added, “Structuring this transaction as a takedown from the existing Johnston Re shelf saved our client time and money, while providing them with the protection they seek. We are pleased how this new issuance builds upon the success of the Johnston Re Series 2010-1 Notes and re-utilizes the Johnston Re program, which was structured to work alongside the landmark 2009 cat bond program, Parkton Re.”

Chi Hum, Global Head of ILS Distribution, GC Securities, commented, “This issuance is an important extension of our client’s capability to finance hurricane loss. It is also a continued endorsement of cat bonds as a key component in catastrophe risk management by both issuers and investors.”

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