Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Twelve Capital issues $25m Dodeka II, its second private cat bond


Specialist Swiss-based insurance-linked securities (ILS) and reinsurance-linked investment manager Twelve Capital has completed the issuance of its second private catastrophe bond, the $25m Dodeka II.

The private cat bond transaction, Dodeka II, is a $25m zero-coupon bond that expires in December 2014, so covering approximately six and a half months. The deal covers U.S. wind and earthquake risks and the trigger is an industry loss with reporting provided by Property Claim Services (PCS).

The novel deal covers second event risk, with two trigger scenarios arranged in a unique structure. The first trigger scenario being the occurrence of an earthquake within the first 3 months of the deal and at least one windstorm over duration of the bond. The second trigger scenario is the occurrence of at least two U.S. windstorms over the duration of the bond up to the maturity date.

Twelve Capital said that the unique structure adds a new element to the catastrophe bond market. The firm explained; “This structure is unique given it combines two different type of events corresponding to two specific time segments. It enriches the liquid cat bond space by adding alternative to the limited second event cat bond capacity.”

Twelve Capital said that the private catastrophe bond structure is playing an increasingly important role within Twelve Capital’s work. These deals, Dodeka II is the second following Dodeka I which was issued in January, are helping Twelve Capital to extend the range of insurance linked investment opportunities within the firms portfolios.

“We have a great network in the (re)insurance sector, and we have the in-house expertise to transfer insurance risk into liquid niche transactions of a manageable size,” commented Dr. Roman Muraviev, Director at Twelve Capital.

The Dodeka II cat bond was issued using the Kane SAC Limited private cat bond platform, which is operated by global independent insurance manager Kane. As with the first Dodeka deal, this latest issuance has had the notes issued on the Bermuda Stock Exchange (BSX) thus enhancing  the notes liquidity and giving Twelve Capital improved options and transparency to trade the notes on the secondary market.

The Dodeka cat bonds give Twelve Capital the option of holding the notes within its own ILS fund strategies, thus giving it deal flow at a time when the primary cat bond issuance market is perhaps not meeting investor demand. It also gives the firm the opportunity to sell them on the secondary market in future with all the liquidity of a securitized and listed instrument.

In this way the private cat bond helps Twelve Capital acquire risk in a liquid form, meeting certain mandates and satisfying its investors demand for liquid investments. With ILS fund managers increasingly using collateralized reinsurance to acquire risk assets, the ability to transform that risk into securities looks set to become increasingly prevalent in the market and Twelve Capital will likely repeat these deals in the future when market conditions demand.

The transaction actually completed and listed on the BSX at the end of February and Dodeka II has been retrospectively added to the Artemis Deal Directory.

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