The Jardine Lloyd Thompson Capital Markets (JLTCM) team has completed its latest privately placed catastrophe bond, a $53.03m Oak Leaf Re Ltd. (Series 2015-1), the fifth consecutive renewal of an Oak Leaf bond for this Florida cedant.
The latest Oak Leaf Re cat bond, which is the largest in the series of five to date, provides the cedant with a one year fully-collateralized catastrophe reinsurance cover for a Florida book of business.
It’s notable that we can now name the sponsor, which has been a market rumour we’ve been aware of for some years. The sponsor of all five Oak Leaf Re bonds is Floridian primary insurer Southern Oak Insurance Company.
As with the previous four Oak Leaf Re cat bonds, the reinsurance protection is for Florida named storms, so covers losses from storms named by the National Hurricane Center, so including both tropical storms and hurricanes as well as any extra tropical storm that had been named.
Being the fifth consecutive year of issuance for the Oak Leaf Re cat bond program, Southern Oak Insurance Company is fast becoming the most prolific Florida-based primary insurer to access the capital markets through catastrophe bond issues.
The protection provided by the $53.03m of Oak Leaf Re 2015-1 cat bond notes is available on both a per-occurrence and aggregate basis and the transaction structure features an indemnity trigger. As with the previous Oak Leaf Re deals, the cat bond is structured as a zero coupon transaction.
There are a number of interesting features in the Oak Leaf Re cat bond which are worth noting.
The deal has been structured into three tranches, including one which is multi-section and covers both severity and frequency losses for the cedant. Another of the three classes of notes is designed to provide reinstatement premium protection (RPP), which is an interesting addition that would be attractive to many sponsors.
The Class A tranche, which includes $47m of notes covering $50m of limit, provides both severity and frequency protection. In other words, this tranche provides either per-occurrence or aggregate protection and features a shared limit.
The Class C tranche, which includes $1.77m of notes, and is a private layer of per-occurrence cover. It sits low down in the reinsurance towers, so is a riskier tranche providing a higher premium to the investors. Being private we don’t have any further details of this tranche.
The final Class D tranche, of $4.26m of notes covering $4.5m of limit, provides single-shot per-occurrence protection. This tranche provides the reinstatement premium protection (RPP), effectively the cedant pays upfront for the protection to cover the need to pay for a reinstatement of cover.
In terms of pricing, being a private transaction and a zero coupon bond these notes do not have a coupon that is exactly comparable with most cat bond issuance. However we understand the Class A tranche priced at a 6% net rate-on-line, relative to the limit, while the Class D tranche priced at 5.33%, again relative to the limit. We don’t have that detail for the private layer tranche
“We are pleased to conclude our fifth Oak Leaf deal,” commented Michael Popkin, Managing Director and Co-Head of Insurance-Linked Securities at JLTCM. “Each year, we are seeing the transaction size grow. This reflects the increased interest of both the cedant and the investors to expand the overall relationship.”
Rick Miller, Managing Director and Co-Head of Insurance-Linked Securities at JLTCM explained that investor demand helped the deal upsize during issuance; “As a consistent issuer, Oak Leaf is enjoying the benefits of long term relationships. For example, we saw the deal upsize during the process. The close coordination between the capital markets group, the traditional brokers, and incumbent investors have continued to provide and created an overall efficient process.”
CEO of JLT Re North America, Ed Hochberg, added; “Our clients are deriving significant value from the capital markets. They are benefiting in terms of panel diversity as well as an increased amount of capacity at attractive pricing. Overall, having each of the different sources of capacity complement one another helps us to optimize across our clients’ programs. As an integrated platform encompassing brokerage, capital markets, and analytics, we are well-positioned to service our clients in this rapidly changing reinsurance landscape.”
The JLTCM team said that the zero coupon structure and multilayer cover works well for both the investors and the cedant and have been well received. The deal was marketed broadly to a global panel of specialist ILS investors.
JLTCM told Artemis; “Southern Oak Insurance Company, the sponsor of the Oak Leaf Re bonds for the past five years, has valued the long standing relationship with the capital markets and continues to value the 100% collateral nature of the bond.”
We’re that there will be more news from the JLTCM team in the near future, as the team has been working on more transactions which use its own private cat bond issuance vehicle, Market Re. We’ll bring you news on any other transactions as it emerges.
We’ve added the Oak Leaf Re Ltd. (Series 2015-1) catastrophe bond to the Artemis Deal Directory where you can also find details of the previous four Oak Leaf Re transactions.