GC Securities, the capital markets arm of reinsurance broker Guy Carpenter has published a press release on its involvement in the Tar Heel Re Ltd. (Series 2013-1) catastrophe bond. GC Securities press release, which you can read in full below, contains some interesting quotes from its clients on the transaction, the two North Carolina wind pool sponsors of the cat bond, the North Carolina Joint Underwriters Assn. (NCJUA) and the North Carolina Insurance Underwriters Assn. (NCIUA).
We won’t go into too much detail on the transaction having already published an earlier press release from reinsurer Munich Re on its role in the deal.
GC Securities acted as lead structurer, sole bookrunner and co-lead manager on the Tar Heel Re cat bond deal. The press release it has published today contains two telling quotes from the sponsors, which demonstrate the value that these wind pools feel the cat bond market offers to them.
Firstly, Glenn Hahn, the Chairman of the NCJUA/NCIUA and also Member Company Board Representative, Fire Operations Manager of insurer State Farm, commented on the completion of this the fourth cat bond the wind pools have benefitted from; “This transaction, which employs an annual aggregate structure with an expanded definition of Named Storm, as well as advance reimbursement provisions, provides our Associations with enhanced coverage and improved post-event cash flow at a competitive price.”
The Tar Heel Re deal is the first to have utilised an annual aggregate and the expanded definition of a named storm, which states that to qualify as a covered event it has to be a named storm which causes a loss to the covered book of business and has been designated a catastrophe by Property Claims Services (PCS) and results in a reported industry loss total of over $100m. This new way to qualify an event as covered will help the cat bond provide protection where it is really needed, for events above $100m and on an aggregate basis so protecting against an active hurricane season.
Hahn also mentions the competitive price. The Tar Heel Re cat bond notes attach at a much lower level than the wind pools previous cat bond Johnston Re Ltd. (Series 2011-1), but the pricing was not so different in the end demonstrating the value that cat bonds currently offer. The Johnston Re 2011 Class A notes attach at $2.977 billion and pay a coupon of 7.60% above the collateral return, while the Tar Heel Re notes attach at just $2.025 billion but only pay 8.50% above collateral return. The Tar Heel Re deal is much better value for money by comparison to the 2011 transaction thanks to current cat bond market pricing conditions.
Gina Schwitzgebel, General Manager of the NCJUA / NCIUA, also mentioned the keen pricing, saying; “Since 2009, the NCJUA/NCIUA have transferred a portion of our named windstorm risk to the capital markets. The consistency and competitiveness of the capital markets help our Associations maintain strong claims-paying ability for our policyholders at competitive prices.”
This is really important for these wind pool type insurers as they are often the insurers of last resort within the State and so need to feel that capacity and capital is available when they need it. Over its four cat bond transactions with the capital markets the NCJUA/NCIUA clearly feel that the capital markets has demonstrated its staying power and appetite for catastrophe risk.
Schwitzgebel continued; “We appreciate all of our business partners in the Tar Heel Re transaction, especially GC Securities, who served as lead structurer, sole bookrunner and co-lead manager, and Munich Re, who served as co-structurer and co-lead manager. Through their efforts, the NCJUA/NCIUA were able to bring a larger bond to market at costs lower than our previous cat bonds.”
Cory Anger, Global Head of ILS Structuring at GC Securities, commented; “The capital markets have uniquely responded to the needs of the NCJUA/NCIUA by providing meaningful and cost-effective annual aggregate capacity (the first annual aggregate triggered cat bond for a wind-exposed residential market entity) while also diversifying and expanding the claims payment capacity of the NCJUA/NCIUA. This cat bond was structured to provide enhanced flexibility relative to prior issuances, such as expanding the protection to cover Named Storms (i.e. tropical cyclone) losses instead of only hurricane-related losses, eliminating certain co-participation requirements and providing certain advance reimbursement payment to the NCJUA/NCIUA and thereby enhancing the NCJUA/NCIUA’s cash management post-event.”
This shows the way that the catastrophe bond market is maturing and finding ways to improve the cover it can offer to these residual wind pool insurers. Cat bond terms are becoming as flexible as traditional reinsurance in some recent cases and are able to provide cover which is very tightly matched to these types of sponsors risk transfer needs.
Chi Hum, Global Head of ILS Distribution at GC Securities, added; “The broad based investor response to the Tar Heel Re offering shows what can be achieved with a consistent and thoughtful approach to the capital markets. Investors acknowledge the professionalism and disciplined business approach that the NCJUA/NCIUA has employed in managing its book of business and facilitating a program objective of increasing the mix of multi year aggregate covers in their reinsurance program. We expect that investors will look forward to supporting future issuances of the NCJUA/NCIUA. Amongst residual market entities, NCJUA/NCIUA has pioneered the optimization of traditional reinsurance and capital markets capacity to achieve a more robust program in terms of price, trigger and duration for the benefit of the member companies and the policyholders of North Carolina.”
Another important point. As the cat bond market becomes more adaptable in the cover it provides it is enabling sponsors to be much more clever in where they choose to utilise capital markets capacity versus traditional reinsurance capacity. For traditional reinsurers there is an opportunity to identify where their services are most appropriate and become much more targeted in their client discussions.
Finally, David Priebe, Vice Chairman of Guy Carpenter and Head of GC Securities, said; “This transaction exemplifies the ongoing and accelerated convergence between the insurance, reinsurance and capital markets and demonstrates the value that NCJUA/NCIUA achieved in partnering GC Securities, Guy Carpenter’s broking team and Munich Re to deliver a solution best meeting NCJUA/NCIUA’s risk transfer needs.”
With its Johnston Re 2011 cat bond still in place for this coming U.S. hurricane season, and the addition of this Tar Heel Re transaction, the NCJUA / NCIUA have now got almost $702m of catastrophe bond cover in place for the wind season.