Florida based primary insurer Security First Insurance Company is set to be the beneficiary of the first full 144A catastrophe bond to be issued in Singapore, as a $100 million First Coast Re II Pte. Ltd. (Series 2019-1) transaction has now been priced and is set for completion.
This will officially be the first full catastrophe bond issuance under Rule 144A in Singapore we can reveal, having just beaten the still being marketed Manatee Re III 2019-1 cat bond, that is also being issued out of the emerging insurance-linked securities (ILS) domicile, to that accolade.
As a reminder, the IAG sponsored Orchard ILS Pte Ltd was not a 144A cat bond, rather it appears more like a transformed collateralised reinsurance deal, although of course this was the first Singapore ILS transaction and while a different ruling under securities laws it does achieve the same goal of transferring risk to capital market investors.
Helping Security First to its landmark securitized reinsurance transaction is global reinsurer Swiss Re, which we understand has acted as a conduit to the capital markets protection for the insurer, as well as sole structurer and bookrunner for the cat bond issuance itself.
This is Security First’s third cat bond issuance and we understand this Singapore domiciled cat bond issuance will be a replacement for its soon to mature $75 million First Coast Re 2016 cat bond.
The Singapore domiciled Special Purpose Reinsurance Vehicle (SPRV) registered for this issuance is First Coast Re II Pte. Ltd., which plans to issue a single tranche of notes to investors with the proceed set to collateralise a reinsurance agreement to cover Security First Insurance.
Interestingly, this First Coast Re II Pte. 2019 cat bond actually began life as a $75 million deal when it first hit the market, enough to replace the maturing 2016 cat bond.
But demand from investors has helped the placement to increase in size and so Security First is set to boost its multi-year and fully collateralized reinsurance protection with this new deal now set to issue $100 million of notes.
Swiss Re America has acted as the ceding reinsurer for this First Coast Re II 2019-1 cat bond, with insurer Security First benefitting from the collateralized coverage by entering into a reinsurance agreement with the firm, while the collateral actually backs a retrocession agreement for Swiss Re.
This helps Security First to access the capital markets in an efficient manner, without having to enter into any agreements itself with the special purpose reinsurance vehicle (SPRV).
The collateralized reinsurance protection from the issued notes, which is on an indemnity trigger and per-occurrence basis across what we believe to be a three-year term, cascades via a retrocessional reinsurance agreement between special purpose insurer First Coast Re II Pte. Ltd. and ceding reinsurer Swiss Re America, which in turn enters into the reinsurance agreement with Security First Insurance.
Covered perils are the same as Security First’s last two catastrophe bonds we understand, so Florida named storm and severe thunderstorm risks.
We don’t at this time have full visibility of the level of risk or where this new catastrophe bond will site in Security First’s reinsurance tower. But we can tell you that at pricing yesterday, the notes priced within the bounds of the upper-half of the initial coupon guidance range.
It’s encouraging to see Singapore gaining traction with now three insurance-linked securities (ILS) transactions coming to market using its recently enacted ILS regulations.
The fact we’ve now seen the IAG transaction, which securitised a layer of a reinsurance program into cat bond note form, as well as the first full 144A catastrophe bond successfully priced in the domicile, will provide confidence to others looking at Singapore as a viable option for ILS transactions.
Of course, the ILS grant scheme established by the Monetary Authority of Singapore (MAS) and which helps to fund upfront ILS bond issuance costs, is a significant draw.
Hence, it’s no surprise that we’ve now seen two Florida issuers taking advantage of this to issue catastrophe bonds and ILS deals in the country.
In addition, the regulations support the incorporation of a purpose-built reinsurance entity (the Special Purpose Reinsurance Vehicle (SPRV)) in Singapore to securitize insurance and reinsurance risks, in addition to which a favourable tax framework that provides tax neutrality to the reinsurance entity and ILS investors is also available.
Alongside the grant scheme this is making Singapore a very attractive destination for ILS issuers right now it seems.
We hope to bring you more details on this first full 144A catastrophe bond to come out of Singapore in due course.
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