Swiss Re Insurance-Linked Fund Management

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Swiss Re helps NY MTA to “transparent” parametric MetroCat cat bond


Global reinsurance firm Swiss Re helped the First Mutual Transportation Assurance Company (“FMTAC”), the New York State captive insurer of the Metropolitan Transportation Authority (“MTA”), to “transparent” protection through its $125 million MetroCat Re Ltd. (Series 2017-1) catastrophe bond.

New York Metropolitan Transportation Authority logoThe capital markets and investment banking specialist unit of the reinsurer, Swiss Re Capital Markets, successfully structured and placed the issuance of $125 million of cat bond notes through MetroCat Re.

The deal, which is the MTA’s second catastrophe bond, provides the Authority with insurance protection against storm surges resulting from named storms and earthquakes in the New York City metropolitan area.

MetroCat Re reinsurers the captive insurer FMTAC, which the captive then delivers the insurance protection to the MTA.

Judy Klugman, Co-Head of ILS at Swiss Re Capital Markets, explained that the cat bond was well received; “Swiss Re is pleased to provide support to FMTAC on its second catastrophe bond issuance. The transaction was well received by investors, which was reflected in the final pricing terms.”

The $125 million of Series 2017-1 notes issued by MetroCat Re  run for almost a three-year risk period starting May 23rd 2017, with the storm surge and earthquake protection both provided on a parametric basis with a binary payout.

The use of a parametric trigger ensures both transparency, in that a payout will either be due because of measured catastrophe conditions or it won’t, and will also provide a quick payout, which helps to complement the rest of the MTA and FMTAC’s reinsurance arrangements.

“The protection provided to FMTAC is a complement to the coverage they get from the traditional reinsurance market and the parametric trigger provides a transparent means to determine a relatively rapid payout following an event,” Klugman explained.

Swiss Re Capital Markets underwrote the transaction via one class of principal at-risk variable rate notes issued by MetroCat Re Ltd., acting as the sole structuring agent and lead bookrunner for this transaction.

As we wrote last week, the MTA has a strategy to utilise the capital markets in order to create tension and competition between markets when placing its reinsurance program, which results in greater price competitiveness.

The use of a parametric trigger alongside its traditional reinsurance adds another element, with a layer of coverage that can payout very quickly and transparently as soon as an event occurs. This provides a useful element of coverage that can help to offset the immediate business interruption suffered, inject capital rapidly to help with rebuilding and construction and gives the MTA an additional boost to help it recover after catastrophe strikes.

Read all about the MTA’s $125 million MetroCat Re Ltd. (Series 2017-1) cat bond issuance and every other catastrophe bond in the Artemis Deal Directory.

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