New York transport operator the Metropolitan Transportation Authority (MTA) is back in the catastrophe bond market with what will be its fourth issuance, seeking a $75 million or larger renewal of its parametric storm surge protection from a new MetroCat Re Ltd. (Series 2023-1) transaction.
The New York Metropolitan Transportation Authority (MTA) first came to the cat bond market to source catastrophe insurance capacity for its operations and infrastructure back in 2013, when it secured $200 million of named storm linked surge protection on a parametric basis with the MetroCat Re Ltd. (Series 2013-1) deal.
The New York MTA then returned in 2017 and added earthquake protection with a $125 million MetroCat Re Ltd. (Series 2017-1) issuance, before renewing that in 2020 at $100 million in size with the MetroCat Re Ltd. (Series 2020-1) cat bond, with that 2020 cat bond maturing this month.
For 2023, the New York MTA is reverting back to seeking just named storm induced storm surge protection with this new MetroCat Re 2023-1 cat bond.
In simplifying the offering, back to parametric surge risks only, the NY MTA may elicit broader investor support and be able to build back up its cat bond coverage at this renewal of the MetroCat Re deal.
Using its Bermuda based special purpose reinsurance vehicle, MetroCat Re Ltd., the New York MTA is seeking $75 million or more in parametric named storm induced storm surge protection from the capital markets.
A $75 million single tranche of Series 2023-1 Class A notes will be sold to investors, with the proceeds to be used to fully collateralize an underlying reinsurance agreement between the issuing vehicle, MetroCat Re, and the New York MTA’s captive insurer First Mutual Transportation Assurance Co..
The captive insurer will in turn provide storm surge insurance protection on a parametric basis directly to the MTA.
It’s another example of an organisation that is not an insurance company leveraging its established captive and an SPI structure to front the capital markets for its catastrophe insurance needs, an efficient way to gain access to the coverage without the need for additional third-party fronting re/insurers sitting in between.
The New York MTA will benefit from the named storm surge insurance on a parametric trigger and per-occurrence basis, with the trigger being binary in terms of the nature of its payout, we understand.
There are two storm surge areas, which require different depths of named storm linked surge to occur for any payout to come due, with measurements taken at recognised tidal gauge water level monitoring stations around New York, we understand.
The MetroCat Re 2023-1 cat bond will cover the NY MTA for an almost three-year term, being on-risk until the end of April 2026, we’re told.
At the base case, the Metro Cat Re 2023-1 Class A notes will have a 1.337% attachment probability and expected loss and they are being offered to investors with price guidance in a range from 5.75% to 6.25%, sources said.
In order for the notes to be triggered, we understand a storm surge would have to reach 8 foot or more in depth at the first trigger area that includes The Battery, Sandy Hook and Rockaway Inlet, or 12 foot or more in depth at the second trigger area that includes Kings Point and East Creek.
It’s good to see the MTA back in the cat bond market again, especially as the way it utilises the capital markets for insurance shows how other large organisations with catastrophe and climate related exposures can secure efficient insurance protection that is from diversifying sources and on a multi-year basis.
We’ll update you as this new MetroCat Re Ltd. (Series 2023-1) catastrophe bond transaction comes to market and you can read all about this and every other cat bond in the Artemis Deal Directory.
Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.
Get a ticket soon to ensure you can attend. Secure your place at the event here!