Oct 10 (Reuters) – A private catastrophe bond has been
listed on the Channel Islands Stock Exchange, the first time
such a deal has been made fully tradable in the secondary
market.
The California Earthquake Authority (CEA) and reinsurance
firm Solidum Partners set up a special purpose vehicle (SPV) in
Guernsey to issue cat bond notes through a transformer
reinsurance contract.
The SPV – called Solidum Re Eiger IC Limited – provides $52
million of earthquake protection for the CEA in the state via a
privately placed catastrophe bond.
Catastrophe bonds are used by the insurance industry to
transfer extreme risks, such as those for earthquakes or
hurricanes, to capital market investors. They receive a handsome
yield in return for agreeing to cover damages they consider
unlikely.
Private cat bonds – sometimes called collateralised
reinsurance contracts – are similar in structure to their
publicly traded peers, with capital set aside and pledged as
collateral against the risks they cover.
Private placement allow the issuer to chose which investors
can buy the notes, and they have traditionally been bought by
investors to hold until maturity. In this case, however,
investors will be able to trade the notes in the secondary
market if an earthquake strikes California.
The private securitisation is the first cat bond to be
listed on any exchange in the world, Bedell Cristin, the law
firm behind the transaction, said in a statement.
The CEA, privately owned but publically funded, currently
buys about $3.5 billion of reinsurance against earthquake risks
each year.
It has sponsored cat bonds worth $600 million via its
Embarcadero Re vehicle and transferred another $52 million of
quake risk through Solidum Re Eiger IC Limited.
Solidum vehicles have issued over $100 million of private
cat bond notes to date, said Cedric Edmonds, partner at Solidum
Partners and director of Solidum Re Eiger IC Limited.
“Solidum was the first entity to issue private cat bonds and
is to date the only entity to have (its) private placement
cat-linked notes traded,” he said in a statement.
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(Reporting by Sarah Mortimer)