Update: This deal actually covered Japan typhoon risks, not earthquakes as we originally reported. The sponsor has also been revealed as Tokio Marine, we have posted an update article here.
A number of sources in the insurance-linked securities and catastrophe bond market have told us about a recently transacted private catastrophe bond deal which provides coverage to an unnamed sponsor for $160m of Japanese typhoon risks. Reuters have also reported this transaction from their own ILS market sources. The deal has been issued through a Bermuda domiciled special purpose reinsurer called Kizuna Re Ltd.
Kizuna Re Ltd. was incorporated in Bermuda on the 8th August and is, we believe, being administered by Aon from their Bermuda office. This may point to Aon Benfield Securities having some involvement in bringing this transaction to market, but we can’t verify that as Aon do also provide captive and company management services.
The deal will not be rated according to our sources and is not going to be Rule 144A compliant. This is similar to previous private cat bond deals which forego ratings and formal compliance in favour of speed to market and a reduced cost for sponsors. In fact, investors we’ve spoken with recently suggest that ratings of cat bonds are looked at much less than the modelling output anyway as that is really what denotes the risk. For some investors thought, the lack of a rating can preclude their involvement in a deal.
This transaction utilised a group of investors who were lined up specially to buy it, which saves costs again on the marketing process.
This is the largest private catastrophe bond transaction that we are aware of and shows that the appetite is there for more of these innovative, quick to market deals. They’re a great way for sponsors to save money, test the water or try something new with a cat bond. It’s also encouraging to see Japanese typhoon risks transferred successfully to capital market investors during the typhoon high risk season, something that rarely happens with U.S. hurricane risk.
We’re seeking out further information on this transaction and if we receive anything further we’ll update you.