Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

New cat bond lowered costs, first to cover floods in Japan: MS&AD


Japanese insurance group MS&AD Insurance Group Holdings hailed the completion of its latest catastrophe bond, the $320 million Akibare Re Ltd. (Series 2018-1) deal, saying that it marks the first Japanese cat bond to feature pure flood exposure and also highlighting that by jointly sponsoring the transaction, its insurers lowered their costs.

The Akibare Re 2018-1, which you can read all about in our Deal Directory and also in our coverage of the transaction as it proceeded to market, was actually sponsored by two insurers, MS&AD owned Mitsui Sumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co., Ltd.

By working together to sponsor the catastrophe bond the pair of insurers benefited from more cost-effective access to reinsurance capacity.

MS&AD explained, “Given the growing interest amongst institutional investors towards cat bonds covering natural catastrophe risks in Japan, the two companies jointly sponsored the cat bond utilizing their knowledge and expertise, as well as reducing the cost for risk transfer.”

The Akibare Re 2018-1 cat bond is also hailed as “The first cat bond in the non-life insurance industry to provide protection against flood risks as well as typhoon risks in Japan” by the insurers.

Many Japanese cat bonds have covered typhoon related flood damages in the past, but this is the first that defines flood as an individual class of event covered under the terms of the cat bond.

Hence this is the first time that ILS investors have taken on exposure to pure Japanese flood risk and the first time an insurer has secured reinsurance protection against that peril through a 144A cat bond.

In fact, flood risk is rare within the catastrophe bond market as a standalone peril, with the majority of transactions that cover flood being linked to either a named storm, typhoon or other specific weather related peril.

There have been just a handful of transactions where flood risk is covered that is not linked to a storm related peril, making this transaction particularly interesting.

As we reported here, FEMA is now bringing its first flood cat bond to market this year, which would be the first time U.S. flood risk has been a standalone peril of any catastrophe bond in the market’s history.

MS&AD said that it, “Strives to continuously make effective use of reinsurance and cat bonds, thereby further strengthening its risk management and enhancing financial soundness.”

The insurer also explained the rationale behind securing its reinsurance capacity in such a way, saying, “Japan has experienced an increasing number of large losses resulting from natural catastrophes, such as typhoon and flood events. In preparation for these, MSI and ADI have utilized reinsurance in order to reduce their net retained risk amount.”

The recently completed Akibare Re 2018-1 catastrophe bond will provide the two MS&AD insurers with a multi-year source of fully-collateralized reinsurance protection against losses from typhoons, floods and earthquake fires, on an indemnity trigger basis and across a four-year term.

You can read about this and every other catastrophe bond since the inception of this market, more than 500 individual transactions, in the Artemis Deal Directory. Read about the record first-quarter issuance in 2018 in our latest cat bond market report.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Register now for our upcoming ILS conference, July 12th 2018, SingaporeILS Asia 2018
Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.