New Bermuda SPI used to issue innovative cat bond
A newly formed Bermuda-based special purpose insurer has been used to issue an innovative new catastrophe bond that will provide protection for a family-owned homeowners insurer based in Florida.
The deal is Security First Insurance Company’s first catastrophe bond, which provide it with protection from named storms and severe thunderstorms in Florida.
The fact that yet another new issuer has opted to use the insurance-linked securities (ILS) markets for the first time can be regarded as another sign that this sector will continue to grow and diversify and will increasingly become a mainstay form of protection for even smaller insurers exposed to certain types of catastrophe risk.
The $75 million deal is also notable for its use of an innovative trigger whereby the attachment level of the indemnity trigger used is adjusted through an annual period as covered events occur, even if the bonds themselves are not triggered, but as the cedant’s other reinsurance protection is eroded.
The notes provide per occurrence indemnity triggered protection from named storms and severe thunderstorms (including tornado and hail events) affecting the State of Florida.
They are described as being structured with a “top & drop” cascading feature where the attachment level adjusts through an annual period as covered events occur and erode Security First Insurance Company’s other reinsurance that inures to the benefit of the cat bond.
The Series 2016-1 Notes have an annual attachment probability of 1.37 percent and annual expected loss of 1.31 percent based on AIR Worldwide’s Hurricane Model for the US (warm sea surface temperature conditioned sensitivity catalog) and Severe Thunderstorm Model for the US.
GC Securities served as joint structuring agent and joint bookrunner.
Cory Anger, global head of ILS Structuring, GC Securities, said: “We are honored to have supported Security First Insurance’s initial foray into the cat bond space. The cascading per occurrence protection was designed with significant flexibility to respond to the covered events of Named Storms and Severe Thunderstorms from a severity and frequency perspective through the cascading feature within an annual risk period as well as through a variable annual reset to adjust the position of such protection layer in future years.”
Chi Hum, global head of ILS Distribution, GC Securities, added: “The strong support of more than 20 participating investors for the Series 2016-1 Notes demonstrates the investor base’s respect for Security First Insurance’s management and approach to underwriting and claims handling in Florida.”