Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Natixis’ role(s) in the Pylon II Capital French windstorm catastrophe bond


The recently completed Pylon II Capital Ltd. catastrophe bond, which provides electricity and energy firm EDF with reinsurance protection against French windstorms for five years, is one of the more interesting recent deals, particularly due to the involvement of French bank Natixis in many of the roles required to issue a cat bond.

Not only did Natixis act as sole arranger for this cat bond transaction for EDF, they also acted as risk transfer counterparty and collateral counterparty through a tri-party repurchase agreement. We reported those roles previously in some of our other articles about this transaction but we hadn’t reported that Natixis also played another role in the transaction until now since we received their press release (which you can read in full at the bottom of this article).

It transpires that Natixis also acted as joint bookrunner (with Swiss Re taking the other bookrunning responsibilities) on the Pylon II Capital transaction and placed much of the transaction with their investment clients through their own sales force. By playing so many roles in the transaction it’s likely that Natixis managed to reduce the costs associated with issuing the cat bond for the sponsor which could have made the cat bond cover more affordable in comparison to traditional re/insurance. The other way this transaction could have become more affordable than many other cat bonds was Natixis’ role as risk transfer counterparty, in place of a traditional reinsurer who are more commonly used. This is similar to the Embarcadero Re California quake cat bond which cost less than the equivalent reinsurance for the CEA.

Innovation in transaction issuance is certainly one way that catastrophe bonds can become a more affordable option for sponsors and more competitive with reinsurance. The number of parties required to get a deal to market is certainly a factor that raises costs and we’re definitely beginning to see a trend for some firms to try to offer more than one service either in order to secure more of the deal for themselves or because they want to specialise in a certain type of ILS (like CatVest who launched yesterday). If that results in lower costs for sponsors then it will help the market to grow.

Natixis press release:

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Natixis successfully arranged and placed €150 million catastrophe bonds for ERDF

Natixis successfully closed the arrangement and placement, as sole arranger and joint bookrunner, of a French windstorm risk transfer transaction for ERDF (Pylon II Ltd.). This deal is a key step of Natixis’ product range development in the risk transfer space (catastrophe bonds) for its client base of insurers and corporates.

This innovative transaction provides ERDF’s aerial distribution network with protection against the risk of a large windstorm in France. 150 million euros of risk are transferred to capital markets via two classes of notes rated B+ (65M€) and B- (85M€).

The deal covers five consecutive years and matures in May 2016. Issuance spread was set at 550 basis points over Euribor for the B+ rated notes and 900 basis points for the B-rated notes. Despite a challenging market environment, Natixis successfully placed the
transaction via its sales force.

Since 2003, Natixis strengthens, as arranger or joint bookrunner, its leadership in Euro denominated catastrophe bond issuances.

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