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Oak Leaf Re Ltd. 2012-1 catastrophe bond privately placed by Towers Watson


Towers Watson Capital Markets (TWCM) have announced the completion of a second Oak Leaf Re Ltd. privately placed catastrophe bond on behalf of a Florida homeowner’s specialty insurance company. Last July TWCM arrange an $11.95m private placement  of cat bond notes through a Series 2011-1 issuance from the Oak Leaf Re Ltd. special purpose insurer (Bermuda domiciled). This years transaction see’s them double the amount of cover being provided to the Florida insurer with Oak Leaf Re 2012-1 coming in at $22.78m in size.

This kind of privately placed catastrophe bond is an important part of the market as it allows smaller deals to be placed, more cost-effectively, directly for an insurer without the need for reinsurer intervention. It gives the Florida insurer a way to tap the capital markets for a portion of their reinsurance cover and is an opportunity for smaller sized transactions to be completed without some of the additional costs of a rated 144a securities offering.

Oak Leaf Re 2012-1 is a one year cat bond deal, as was last years 2011-1 transaction. It will provide the unnamed Florida homeowner’s specialty insurer with a $22.78m source of fully collateralized, indemnity based catastrophe reinsurance cover via the capital markets. We assume that this is a Florida hurricane deal as last years was.

Interestingly, TWCM give a little more detail on the transaction this year to show off the sophistication of these private placement cat bond deals. TWCM arranged for Oak Leaf Re 2012-1 to contain three layers of the cedant’s risk management program, including a reinstatement premium protection layer. That’s a broad coverage from a small cat bond and will have been attractive to the cedant as it will have allowed them to closely tie this to their wider reinsurance program.  Similar to the 2011-1 deal, Oak Leaf Re 2012-1 also covered a layer that provided both top-layer and aggregate protection of the cedant’s program. TWCM say that this years deal also demonstrates that its private placement catastrophe bond offering has growing investor appeal, as Oak Leaf Re 2012-1 expanded the number of investors compared to its initial offering last year, with some investors participating in more than one layer. This is further evidence of the attraction cat bonds, even Florida exposed ones, hold for investors right now.

“Towers Watsons’s presence in this marketplace has been well-received, evidenced by the increased number of investors participating in the risk transfer mechanism,” Mike Popkin, TWCM senior vice president observed. “TWCM expects that the increased number of investors should continue to expand the secondary market liquidity, which was established during the inaugural year of the Oak Leaf Re program.”

“Insurance-linked securities continue to develop as important risk financing tools in the convergence marketplace, with a growing acceptance of private placement catastrophe bonds,” Rick Miller, TWCM senior vice president said.  “Towers Watson will continue to build its insurance-linked securities’ platform, and we eagerly anticipate bringing other cedants to market in the future.”

It’s extremely encouraging to see this repeat private cat bond deal come to market. The ability for smaller insurers to access the capital markets is vital for the continued development of the ILS and cat bond space and these privately placed deals are a way this can be facilitated. We expect this trend to continue and have heard of other smaller Florida insurers looking at these types of transactions as a possible component of their reinsurance programmes.

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