SCOR optimises retrocession, diversifies capital with Atlas IX cat bond

French reinsurance company SCOR’s $150m U.S. wind, U.S. and Canada earthquake catastrophe bond Atlas IX Capital Limited (Series 2015-1) is seen as a tool used to optimise the reinsurers retrocession and diversify its risk capital sources, the firm said yesterday.

In an announcement on the soon-to-complete Atlas IX Capital cat bond, SCOR said that the successful sponsorship of the cat bond is “part of its policy of diversifying its capital protection tools.”

Atlas IX Capital, an Irish domiciled special purpose vehicle, issued the $150m of notes, which will provide SCOR Global P&C with a fully-collateralized source of retrocessional reinsurance for losses from U.S. named storm, U.S. earthquake and Canada earthquake risks, over a four-year risk period.

Victor Peignet, CEO of SCOR Global P&C, commented on the cat bond issuance; “The successful placement of this new cat bond, building upon a series of capital market transactions, is fully in line with SCOR’s strategic initiative to optimize its retrocession structure to accompany the Group’s cat capacity growth.”

SCOR sees the deal as a replacement for the U.S. hurricane and quake tranches of the recently matured Atlas VI Capital Ltd. (Series 2011-1). A Series 2011-2 tranche issued at the same time covers European windstorm risks and is still in-force until the end of the season in late-March, so SCOR would not have needed to replace that tranche at this time.

To effect the reinsurance protection, SCOR Global P&C enters into a risk transfer contract with the issuer Atlas IX Capital Limited. SCOR’s risk transfer protection from the cat bond will be fully collateralized with securities issued by the European Bank for Reconstruction and Development, held in a collateral trust.

The cat bond will pay losses based on industry insured losses and market share factors, using an industry loss trigger based on PCS reports on an annual aggregate basis.

As we wrote yesterday, the cat bond was priced on 5th February and SCOR says it expects the deal to close on 10th February 2015. The pricing settled at the low-end of guidance at 7%, which with an expected loss of 3.43% puts the risk investors will be assuming at a multiple of slightly over 2 times the expected loss.

This is SCOR’s second issuance using this vehicle, the first being a mortality catastrophe bond issued in September 2013, Atlas IX Capital Limited (Series 2013-1).

SCOR said that; “The protection of its capital constitutes a strategic axis for SCOR and capital market solutions have been regularly used for it.”

Peignet said on this specific transaction; “With a protection for US Named Storm and US and Canada Earthquake events on an aggregate basis, this transaction enables SCOR to complement its retrocession programme, minimising counterparty credit exposure and diversifying counterparty risk.”

SCOR said that it has completed fifteen capital markets risk transfer transactions to date including catastrophe bonds, mortality bonds as well as Contingent Capital issuances. We have eleven listed in the Deal Directory, the cat and mortality bonds, and SCOR remains one of the largest sponsors in the outstanding market and will move into the top-ten, according to our data, when this deal completes.