“Private” Catastrophe Bond Hits Market

A $11.95 million “private placement” catastrophe bond was completed Towers Watson Capital Markets Tuesday in what the broker described as “very important step” in allowing smaller insurers to access the market.

Towers Watson said an unnamed “Florida insurance company” issued a bond titled Oak Leaf Re 2011-1, according to a statement. The bond will cover the top layer of the insurers’ program and will provide “sideways coverage” during instances when the cedant’s “third net retention is exhausted.”

The statement did not name the insurer.

The bond will have an indemnity-based trigger and will operate in the same way as collateralized reinsurance, the statement explains. The bond will pay out either under a singular “massive” hurricane or under multiple events in Florida and claims on Oak Leaf are based on the ultimate net loss of the cedant.

“Towers Watson Capital Markets worked closely with Towers Watson’s Florida practice reinsurance brokerage team to construct a bond that would work in conjunction with the rest of the insurance company’s traditional reinsurance placement,” Rick Miller, senior vice president of Towers Watson said in the statement. “This type of structure will provide middle-market insurance companies access to the capital markets. For far too long, the ILS landscape was primarily the domain of large national insurance carriers that could afford the massive strategic investment.”

Catastrophe bond issuance directly to the capital markets has stalled this year as issuers opt for better pricing in the private market and investors continue to determine the extent of losses tied to the New Zealand and Japan earthquakes.

A report issued by Guy Carpenter last week says that while $592 million in new catastrophe bonds were offered in the second quarter of 2011, more than $1 billion was returned to investors as notes matured.

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