A corporate cat bond is a cat bond that is sponsored directly, or indirectly, by a company, corporation, or other similar entity.
Increasingly, corporations and companies are accessing the insurance-linked securities (ILS) markets directly, or indirectly with the help of reinsurance market participants, to access the capital market investor appetite for insurance risk.
Corporate cat bond sponsors typically seek protection against peak catastrophe perils through issuance of cat bonds.
A fronting reinsurer, or a captive insurance entity, are often used to interface with the issuing vehicle and act as an intermediary between the corporate sponsor and the capital markets investors, to cascade the cat bond coverage down to the corporate sponsor as insurance protection.
Bankruptcy threatened California focused electrical utility PG&E Corporation (the Pacific Gas and Electric Company) spent almost $27 million in annual premium for the $200 million of coverage it received from the at-risk Cal Phoenix Re Ltd. (Series 2018-1) catastrophe bond.
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A renewal of the only catastrophe bond in the market that provides its sponsor with reinsurance protection for workers compensation claims caused by earthquakes is underway, as a currently $225 million Golden State Re II Ltd. (Series 2018-1) transaction has been launched to the market.
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The SD Re Ltd. (Series 2018-1) catastrophe bond transaction, which will be the second California wildfire cat bond covering third-party liability costs, has not grown in size while being marketed, remaining at $125 million while the pricing is expected to settle today at the middle of initial guidance.
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California focused electrical utility PG&E Corporation (the Pacific Gas and Electric Company) now benefits from $200 million of insurance protection against losses related to wildfires, through the completion of Cal Phoenix Re Ltd. (Series 2018-1), the first catastrophe bond to benefit a corporate sponsor using an indemnity trigger.
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The utilisation of parametric structured insurance-linked securities (ILS) solutions to protect corporations against the impacts of natural disasters has the potential to grow, providing effective coverage where conventional insurance and reinsurance markets have perhaps failed to do so, according to Dr. Alan Punter.
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The latest risk barometer from Allianz, its fifth in the series, reveals that organisations still perceive Business interruption (BI) and supply chain disruption as the main threat to operations, with 51% of respondents citing a fear that natural catastrophes will cause BI losses in 2016.
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With interconnectivity increasing, the negative and costly economic impact from business interruption (BI) risks is a growing concern for many firms. Again bringing to light the potential for ILS and alternative risk transfer structures to provide much-needed coverage for BI exposures.
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Businesses looking to protect themselves from property damage or business interruption due to natural disasters or weather events should look to alternative risk transfer structures and parametric triggers to ensure a recovery can be made, according to Marsh.
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