Pool Re, the British government-backed terrorism reinsurer, has placed the world’s first terrorism catastrophe bond.
The three-year cat bond, worth £75 million, has been issued through a special-purpose vehicle, Baltic PCC.
It is the first-ever insurance-linked securities (ILS) contract to exclusively cover terrorism risk and the second contract to be issued under the UK’s new ILS regulatory system.
The cat bond provides retrocession protection of £75 million in excess of Pool Re members’ net loss of £500 million, which brings new sources of capital to the terrorism risk market, returns additional premium to the private sector and moves UK taxpayers further from the risks that Pool Re mutualises on their behalf.
The bond covers physical damage arising from terrorist attacks on an indemnity basis, including chemical, biological, radiological, and nuclear attacks, as well as losses emanating from cyber trigger and risk was modelled using Pool Re’s own model calibrated by Cranfield University using computational fluid dynamics.
GC Securities placed the bond, which provides cover on an annual aggregate basis and carries an initial interest spread of 5.9 percent per annum.
The bond is also the first London-domiciled cat bond to be listed on the Bermuda Stock Exchange, where it is sponsored by Estera Securities.
Julian Enoizi, Pool Re CEO, said the reinsurer had been working toward the placement for several years and was “excited to bring an entirely new source of capital to the terrorism risk market for the first time”.
Enoizi added: “It diversifies the funding of our retrocession programme, complementing the capital of traditional reinsurers to spread terrorism risk even more broadly.”
“In addition, it further protects HM Treasury, and helps us towards our ultimate goal of returning as much risk as possible to private markets.”
GC Securities president, Shiv Kumar, commented: “Executing this successful placement whilst the ILS market is processing losses from 2017 and 2018, demonstrates the strength and quality of Pool Re’s proposition and their market-leading risk analysis.”
“This type of innovation is a great example of the major role the UK market can play in broadening the ILS asset class.”
Katherine Coates, corporate partner and head of the global insurance group at Clifford Chance, who advised Pool Re on the transaction, described the deal as “another strong endorsement of the UK’s new ILS regime”.
She added: “Closing it would not have been possible without the effective support of the Prudential Regulation Authority.”