Alternative Risk Transfer

Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives successfully secured its largest slice of catastrophe bond protection ever, as its new two-tranche Nakama Re Pte. Ltd. (Series 2021-1) issuance achieved the top-end target of $775 million. They had originally been targeting $500 million. The indemnity-triggered coverage is set to run across almost five years to October 2026, with three annual aggregate risk periods, each three-years in length, that overlap across the term. The notes to be issued by Nakama Re Pte. Ltd. will be exposed to losses from Japanese earthquakes, including losses from shake and related perils including tsunami's, fire, flooding and sprinkler leakage.

Power Protective Re is planning to issue a single tranche of Series 2021-1 Class A notes covering wildfire losses across the state of California for the Los Angeles Department of Water and Power (LADWP), on an indemnity and per-occurrence basis, across a three-year term. A covered event can be a wildfire related loss to the LADWP's infrastructure and equipment and also losses to the LADWP where the utility is deemed liable for a wildfire.

"UK pension funds signed a total of 23 buyout, buy-in and longevity swap deals during the first six months of 2021, compared with 25 pension risk transfers tracked during the same time period last year. Inflows into bulk annuity deals dropped by more than 70 per cent, from £18.9bn in the first half of 2020 to £5.6bn during the first six months of this year. The significant drop in inflows can be explained by smaller pension risk transfer deals that have been completed this year. The data reveal an average deal size this year of around £260m, compared with £900m in 2020. Last year's high inflows were driven by large individual transactions, such as the £10bn longevity swap secured by the £17.9bn Lloyds Bank Pension Scheme No. 1, the circa £8bn Lloyds Bank Pension No. 2 and the £13.7bn HBOS Final Salary Pension Scheme."

Los Angeles Department of Water and Power (LADWP) secured $30 million of wildfire insurance cover with its Power Protective Re Ltd. (Series 2021-1) single-tranche deal. The notes cover LADWP's wildfire losses across the state of California on an indemnity and per-occurrence basis, across a three-year term. A covered event can be a wildfire related loss to the LADWP's infrastructure and equipment and also losses to the LADWP where the utility is deemed liable for a wildfire.

China Re secured $30 million of retro reinsurance protection with its Greater Bay Re Ltd. (Series 2021-1) zero-coupon one-year cat bond, the first catastrophe bond to be issued out of Hong Kong. The notes will cover certain losses from Chinese typhoons, on an indemnity trigger basis. Coverage is understood to include the Greater Bay region and other areas of high exposure to typhoons.

"Catastrophe bond and related insurance-linked securities (ILS) issuance continued at record pace through the third-quarter of 2021, with over $2.6 billion of new risk capital issued and the market now well on-track to beat all its records in 2021, according to the latest report and data from Artemis."

The catastrophe bond and related insurance-linked securities (ILS) market has set another new record, as the amount of issuance across the twelve-month period to end of September 2021 reached a new all-time-high. For the twelve-months to September 30th 2021, the Artemis Deal Directory has recorded more deal-flow that in any other 12-month period since it first began tracking this marketplace.

The Miracle Garden Care Pension Scheme has completed a £49 million buyout deal with Just Group. The bulk annuity transaction covers pensioner and deferred liabilities and more than 140 members of the scheme.

Hannover Re is seeking to issue at least $400 million single-tranche Acorn Re Ltd. (Series 2021-1) parametric catastrophe bonds that provides earthquake related workers compensation protection. Hannover, acting as the ceding reinsurer, is sitting in front of Oak Tree Assurance Ltd., a Vermont domiciled workers compensation captive owned by the Kaiser Permanente group of health plan companies. The Acorn Re 2021-1 cat bond will also provide some additional protection to other Hannover Re reinsureds, which have exposure within the parametric earthquake box. The covered area is focused on the U.S., Canadian and Mexican west coast.

USAA is back in the catastrophe bond market for its regular November issuance of a per-occurrence indemnity-trigger catastrophe bond, targeting at least $225 million of multi-peril reinsurance protection from a two-tranche Residential Reinsurance 2021 Limited (Series 2021-2) transaction. It covers U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, other perils (all including auto & renter policy flood losses).

Isosceles Insurance, the private insurance-linked securities (ILS) and catastrophe bond issuance platform operated by Marsh McLennan and reinsurance broker Guy Carpenter issued $21.5 million of single-tranche Isosceles Insurance Ltd. (Series 2021-H) discounted zero coupon participating notes maturing August 5, 2022. No other details are currently available, as it is a private placement, but stay tuned to Artemis.bm for any details that do pop up.

"Eclipse Re Ltd., the Horseshoe managed private syndicated collateralized reinsurance note, private catastrophe bond issuance and reinsurance transformer platform, has issued four new tranches of cat bond notes, totaling roughly $45.2 million, with the four tranches potentially part of the same reinsurance or retrocession program arrangements."

Electrical utility Sempra Energy is looking to issue a minimum of $180 million of two-tranche indemnity-basis SD Re 2021-1 catastrophe bonds, to provide protection against certain financial losses it could suffer due to wildfires that have been caused by its own infrastructure or facilities in California.

The PerkinElmer (UK) Pension Scheme has completed a £130 million full buy-in with Phoenix Group subsidiary Standard Life, covering all pensioner and deferred members of the UK healthcare diagnostics company's scheme. The buy-in provides insurance for the scheme's defined benefit pensions, with potential to convert to a buyout in the future. This deal was Standard Life's first full-buy in.

Hannover Re is upsizing issue size of its single-tranche Acorn Re Ltd. (Series 2021-1) parametric catastrophe bonds from $400 million to $475 million. The bonds will provide earthquake related workers compensation protection. Hannover, acting as the ceding reinsurer, is sitting in front of Oak Tree Assurance Ltd., a Vermont domiciled workers compensation captive owned by the Kaiser Permanente group of health plan companies. The Acorn Re 2021-1 cat bond will also provide some additional protection to other Hannover Re reinsureds, which have exposure within the parametric earthquake box. The covered area is focused on the U.S., Canadian and Mexican west coast.

USAA is hoping to upsize its latest catastrophe bond, with the new Residential Reinsurance 2021 Limited (Series 2021-2) transaction now seeking up to $300 million (from the original $225 million) of four-year collateralized multi-peril property per-occurrence indemnity-trigger two-tranche catastrophe reinsurance for the insurer, while price guidance has been lowered. It covers U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, other perils (all including auto & renter policy flood losses).

The first half of 2021 was a muted period for buy-ins and buyouts compared with the previous two years, but despite trustees being wary of pricing, consultants are optimistic that volumes will increase in the second half

Since their introduction in the mid-1990s, the return per unit of risk or multiple on catastrophe (cat) bonds has steadily declined. This paper investigates whether this pattern is consistent with the historical evolution of natural disaster risk. Assessing the accuracy of cat bond pricing is important, since about 50% of outstanding risk capital in the cat bonds market is currently exposed to Atlantic hurricanes -a risk that climate change, among other disruptions, is expected to enhance- and pension and mutual funds in European and other OECD countries currently own about 30% of the market. In this respect, while our findings suggest that falling multiples are primarily related to the Fed's expansionary monetary stance and to portfolio shift effects, we do also find evidence of significant undervaluation of natural disaster risk in the cat bonds market. This finding, also in light of the unfailing appetite of institutional investors for such securities, casts doubts over the sanity of the market and over cat bonds as suitable investment products for risk averse investors.

"Catastrophe bond and related insurance-linked securities (ILS) new issuance has now reached $17 billion in 2021, setting a new annual record for the total tracked by our Artemis Deal Directory."