Generali praises diversity offered by ILS deal
Generali has said the success of its recent catastrophe bond shows that investors appreciate the company’s recent moves to streamline its balance sheet and ensure long-term profitability. The bond also provides it with more flexibility and diversity of capital, the Italian insurer said.
Lion I Re, an Irish special purpose reinsurance company, provides Generali with €190 million of per occurrence protection in respect of losses stemming from Europe windstorms over a three year period.
The deal is the first ever Rule 144A capital markets placement providing protection in respect of European windstorm risk on an indemnity basis in the market. It is also the first Italian sponsored catastrophe bond.
“Leveraging the consolidation of the Group’s reinsurance implemented since 2013, this catastrophe bond allows us to further optimize the purchase of reinsurance protection while maintaining a good degree of flexibility and diversifying the panel of capacity providers in order to mitigate counterparty risk,” said Sergio Balbinot, the chief insurance officer of Generali.
Alberto Minali, the Group CFO of Generali, added: “The success of this initiative further demonstrates that the capital markets appreciate the actions our Group is undertaking to optimize its capital allocation in line with the strategic targets announced last year. For us it is a new step of utmost importance aimed at an efficient implementation of alternative risk transfer mechanisms where appropriate.”
Strong demand from investors meant the bond was upsized by 27 percent from the initial €150 million. Generali will pay a premium of 2.25 percent per annum on the €190 million of cover under the reinsurance agreement.
The notes will be triggered if a windstorm generates losses to Generali Group at a level higher than €400 million (up to €800 million) in a pre-defined region comprising 16 European countries.
GC Securities was lead structuring agent and bookrunner on the deal. Munich Re was co-structuring agent. Aon Benfield Securities was joint bookrunner
Cory Anger, global head of ILS Structuring at GC Securities, said: “In addition to being the first indemnity triggered 144A Europe windstorm catastrophe bond and incorporating the latest structural features of the cat bond market, Lion I Re pioneers a new methodology to allow cedants to access the capital markets at any point the during calendar year but only pay an annual premium rate that adjusts to reflect the commensurate amount of risk contributed for such portion of a partial calendar year period.
“Such a feature opens the ability for cedants to access capital markets protection at a different time than their traditional renewal without paying excess premium. Additionally, defining Europe windstorm for the expansive European geography that was covered under the Lion I Re was carefully crafted in order to best extract such risk from an ongoing traditional reinsurance program and was fully accepted by the investor base. We are honored to have been selected to lead the structuring of, and jointly distribute the Lion I Re notes to facilitate Generali’s centralization and capital optimization objectives.”
