The recent CHF 70m ($71m) Leine Re private catastrophe bond transaction, which was issued through Hannover Re’s Kaith Re Ltd. segregated accounts company, was ultimately ceded by and benefits Swiss canton insurer Gebäudeversicherung Bern (GVB).
A press release from Guy Carpenter’s capital markets arm, GC Securities, which acted as the sole placement for the issuance of the Leine Re private cat bond, reveals some new information including the fact that Swiss insurer GVB is ultimately the beneficiary of the protection the cat bond provides.
GVB is a private property insurer established by law to provide mandatory insurance coverage against fire and weather-related damage for all buildings in the canton of Bern. The completion of the Leine Re private cat bond is the first time that the insurer has used the cat bond market to manage its risks.
The notes issued by Kaith Re Ltd., through its segregated account Leine Re, have been placed under Regulation S as Principal At-Risk Variable Rate Notes, with a due date of January 15, 2016. The notes have a notional principal at CHF70,000,000 and this is the first ever Swiss franc-denominated catastrophe bond to be issued.
Kaith Re is a Bermuda exempted company registered as a Class 3 insurer and a segregated account company owned by German reinsurer Hannover Re. Kaith Re Ltd. is increasingly being used for facilitating private catastrophe bond issuance and risk transformation for ILS deals as Hannover Re positions itself as one of the leading ILS facilitators.
In the case of the Leine Re private cat bond, Kaith Re acted on behalf of the segregated account Leine Re to issue the notes and ultimately provide capital markets protection to GVB via the Swiss Franc-Denominated Private Catastrophe Bond (“Gurten”).
The private cat bond’s protection is positioned alongside traditional reinsurance cover on each layer of GVB’s traditional reinsurance program. The transaction provides one year of annual aggregate cover to GVB on identical coverage terms to its traditional reinsurance program terms.
Patrick Lerf, Chief Financial Officer of GVB commented on the deal; “GVB appreciates the assistance of GC Securities, Kaith Re and the investors in successfully completing our first catastrophe bond. This transaction demonstrates our ongoing commitment to provide financial security to our policyholders.”
Frank Achtert, Head of Capital Optimisation – Strategic Advisory EMEA at Guy Carpenter & Company GmbH, added; “This transaction exemplifies the continued application of alternative capital to the European insurance and reinsurance communities and the successful result of Guy Carpenter bringing cedents together with investors.”
Interestingly, the deal involved two of the world’s leading ILS managers from Switzerland, LGT ILS Partners Ltd. and Schroders Investment Management [Switzerland] AG. These key investors were involved early in the issuance process, which streamlined the implementation of the cat bond.
The end result was to efficiently provide GVB with a source of capital markets-backed reinsurance protection covering Swiss natural peril catastrophe risk, which GC Securities said is “highly competitive” compared to its traditional reinsurance placement.
“We are delighted to have facilitated GVB’s first catastrophe bond transaction and pioneered the first Swiss franc-denominated catastrophe bond. This private catastrophe bond transaction demonstrates the growing application of alternative capital to insurers, reinsurers, sovereigns and corporates globally as well as the ability for capital markets investors to provide meaningful capacity with coverage terms (including for non-modeled perils) consistent with the traditional reinsurance markets,” explained Cory Anger, Global Head of ILS Structuring at GC Securities.
The catastrophe bond market continues to evolve. Private transactions like this enable new sometimes smaller cedents and sponsors to be brought to the ILS market and facilitate unique deals covering unique perils in the market. GVB is an interesting cedent as well, almost a municipal insurer, which could grab the attention of other primary insurers which provide mandatory protection for property risks.
Our information on the Leine Re private catastrophe bond transaction will be updated in our Deal Directory and where possible will be included in all of our catastrophe bond and ILS market statistics.