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Structuring of XL Catlin’s Galileo Re cat bond attracted investors: Cory Anger


The structuring of the recent $300 million Galileo Re Ltd. (Series 2016-1) international multi-peril catastrophe bond, sponsored by XL Insurance (Bermuda) Ltd. helped to facilitate investor demand, according to GC Securities Cory Anger.

The first catastrophe bond to be sponsored by XL Catlin, since XL Group acquired insurance and reinsurance group specialist Catlin Group Limited, was well-received by the insurance-linked securities (ILS) investor base thanks to the tranching and trigger selected for this capital markets retrocession deal.

Cory Anger, Global Head of ILS Structuring at GC Securities, explained; “The transparent weighted industry loss trigger structure and thoughtful tranching of the overall risk layer best facilitated investors’ appetite for all classes within the Series 2016-1 Notes to maximize overall investor interest that could participate depending upon their fund’s requirements.”

The Galileo Re 2016-1 cat bond provides XL Insurance (Bermuda) Ltd. and certain of its insurance and reinsurance affiliates and related entities (collectively XL Catlin), with a multi-year source of collateralised reinsurance protection on an annual aggregate basis from losses due to Named Storms hitting the U.S., earthquakes affecting Canada and the U.S., and European windstorms.

The cat bond features a weighted industry loss index trigger, using industry losses as reported by Property Claim Services for the U.S. and Canada and PERILS AG for Europe. The transparent nature of this trigger when used for retrocessional reinsurance of a large insurance and reinsurance group like XL makes it well suited to the transaction.

Anger continued; “We are honored to have facilitated XL Catlin’s first 144A catastrophe bond transaction through the existing Galileo Re cat bond facility that was originally established by a Catlin affiliated entity in order to provide additional risk transfer capacity at attractive pricing, streamlined transaction costs and expedited execution timeframe.”

Nick Frankland, CEO of Guy Carpenter’s EMEA Operations, added; “Galileo Re Series 2016-1 Notes demonstrates Guy Carpenter’s and GC Securities’ commitment to providing alternative capital retrocession solutions to the reinsurer community. Alternative capital solutions can be beneficial as the industry goes through organizational changes and consolidation in reaction to the current market environment and impact of competing new capital sources for assuming (re)insurance risk to maintain overall cost effective capitalization.”

The cat bond transaction issued through Galileo Re saw three tranches of notes issued, providing the ILS investor base with a range of risk and return profiles. Each tranche was sized at $100 million, with the Class A the riskiest with an expected loss of 9.52% and a coupon of 13.5%, Class B next at an EL of 4.96% and coupon of 9% and finally the Class C notes have an EL of 3.09% and coupon of 7%.

As Anger said, the use of tranching allows a catastrophe bond to be sliced to meet different investor appetites and can result in greater support for a transaction, allowing greater distribution across the ILS investor base as those looking for higher yields, as well as those looking for lower risk, all have options to allocate to a transaction.

Chi Hum, Global Head of ILS Distribution at GC Securities, commented; “The strong market support for each Class within the Galileo Re Ltd. Series 2016-1 Notes provides yet another example of the expanding relevance and competitiveness of capital markets capacity including for higher risk profile placements. Execution was also aided by XL Catlin’s reputation and track-record as an intelligent utilizer of non-rated capital sources throughout its risk transfer program.”

The Galileo Re 2016-1 catastrophe bond also provided enhanced flexibility to XL Catlin and the other covered insurance and reinsurance subsidiaries, with features incorporated to enable the cat bond coverage to be adapted as the company adapts to market forces.

“XL Catlin also incorporated new flexibility into the transaction structure with respect to annual resets allowing XL Catlin to react to future market conditions while maintaining the cohesiveness and applicability of the Galileo Re protection,” Anger explained.

GC Securities acted as sole structuring agent and bookrunner for the transaction.

You can read all about the $300 million Galileo Re Ltd. (Series 2016-1) catastrophe bond from XL Catlin and every other catastrophe bond in the Artemis Deal Directory.

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