Jardine Lloyd Thompson Capital Markets (JLTCM) ILS structuring and issuance team has successfully closed the ground-breaking temperature-linked weather catastrophe bond Market Re Ltd. (Series 2016-5), securing $30.75m of coverage against European winter temperature extremes for the sponsor.
The novel weather catastrophe bond (or weather bond), which based on Artemis data from our catastrophe bond directory is the first temperature related weather cat bond in almost 17 years, saw sponsor Allianz Risk Transfer working with the Jardine Lloyd Thompson Capital Markets (JLTCM) ILS structuring and issuance team.
The transaction downsized during its marketing phase, as one tranche was dropped, but what’s most important about this transaction is that it completed and could open up the cat bond market to greater securitisation of weather risks.
The completed privately placed catastrophe bond, Market 2016-5 provides $30.75 million of single year parametric-based collateralized retrocession coverage for warm-weather winters across Europe in one tranche of notes.
When the deal launched it saw the Market Re Ltd. special purpose vehicle, which is managed by specialist insurance and ILS manager the Horseshoe Group for JLTCM, seeking to issue and sell to investors two tranches of Series 2016-5 notes, with the aim of providing the sponsor Allianz Risk Transfer with a source of fully-collateralised reinsurance protection which was slated to run for almost three years, across three risk periods. It featured two tranches of notes amounting to just over $70m.
It’s completed as a single year deal, of one tranche at $30.75m, exposed to the risks of warmer winter temperatures across five key weather measurement points in the continent. The five locations where temperatures will be measured are London, UK; Paris, France; De Bilt, Netherlands; Prague, Czech Republic and Frankfurt, Germany.
The notes feature one risk period that is split into two index calculation periods. We understand that the tranche was sold to investors with a 6% coupon.
Ed Hochberg, CEO of JLT Re North America and JLTCM, commented on the deal; “We continue to service our clients with cutting-edge, innovative, and economical risk transfer solutions. This transaction is a perfect illustration of the overall growth of the capital markets and ILS space. It is particularly noteworthy as it is the first ILS weather trade in nearly two decades.”
“We are enthusiastic for what this means for the ILS market. Market Re 2016-5 (Weather) gives investors access to both unique European risk and yield which are currently not common in the marketplace. We foresee these types of transactions (e.g. parametric, weather-based) becoming more prevalent as the ILS market continues to grow,” explained Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets. “We received strong interest and support during the marketing of the transaction, signalling that investors are ready to support bespoke, diversifying risks for the appropriate risk-reward levels.”
“Market Re continues to prove its adaptability and efficiency in the marketplace. We see this transaction as a natural extension of both the ILS market and the Market Re platform,” added Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at Jardine Lloyd Thompson Capital Markets. “We fully expect to bring more Market Re weather deals to market and grow the segment.”
This weather linked cat bond is an important deal as it does open up the catastrophe bond market to a new peril, temperature, at a time when temperature risks are gaining focus and the cat bond market and its investors are seeking new risk.