Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Travelers returns to cat bonds with $200m Long Point Re III 2015


U.S. primary insurer Travelers is back in the catastrophe bond market for the first time in two years with a $200m Long Point Re III Ltd. (Series 2015-1) deal, seeking fully-collateralized reinsurance coverage for multiple U.S. perils.

Travelers last cat bond issuance was the $300m Long Point Re III Ltd. (Series 2013-1) which matures in May 2016.

This new 2015 Long Point Re III deal will be the fifth cat bond issuance by Travelers and in the details retrieved from sources it transpires that this is Travelers first multi-peril deal, as the previous four were all U.S. hurricane bonds.

In this issuance Long Point Re III will issue a single tranche of Series 2015-1 Class A notes, preliminary given a size of $200m, which will be sold to investors to collateralize reinsurance agreements covering the insurer from multiple perils over a three-year term.

The covered perils are tropical cyclones, earthquakes, severe thunderstorms and winter storms. Coverage for these perils is across northeast U.S. states, on a per-occurrence basis and the cat bond features an indemnity trigger.

The Long Point Re III 2015-1 cat bond covers a number of Travelers insurance companies, Travelers Indemnity, Travelers Casualty & Surety, St. Paul Fire and Marine and The Standard Fire Insurance Company, as well as any associated subsidiaries of each.

The notes will attach at $2 billion of losses and cover losses up to an exhaustion point of $2.5 billion, however we’re told this is after a retention of at least 10% of event losses and a maximum per covered insurer of $20m per risk.

That results in an initial attachment probability of 1.276%, an initial exhaustion probability of 0.946% and an expected loss of 1.106% base case, or 1.176% on a sensitivity case basis.

Price guidance for the Long Point Re III 2015-1 Class A notes is set at 3.5% to 4%, which suggests a multiple of around 3x the sensitivity case expected loss at the lower end of pricing.

We understand that this catastrophe bond features a variable reset feature, now typical in cat bonds, and also a call option, which is becoming typical for large primary insurers allowing them an early redemption opportunity.

The Long Pont Re III 2015 cat bond is being brought to market by sole structuring agent and joint bookrunner Swiss Re, Deutsche Bank are also joint bookrunner and Aon Benfield Securities acting as co-manager. AIR Worldwide is risk modeller.

It’s encouraging to see another large U.S. primary insurer returning to the cat bond market to add protection from the capital markets. After a period of consolidation perhaps insurers are finally noticing the keen pricing and flexible reinsurance alternative offered by ILS investors through cat bonds.

We’ll keep you updated as Travelers new Long Point Re III Ltd. (Series 2015-1) catastrophe bond goes through the issuance process. You can read all about this and every other cat bond in the Artemis Deal Directory.

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