2 June 2015 Alternative Risk Transfer

MPIUA completes $300m cat bond

The Massachusetts Property Insurance Underwriting Association (MPIUA) has closed a $300 million catastrophe bond.

This is the second time that MPIUA has utilised the cat bond market to manage its natural peril risks.

According to GC Securities, which structured the cat bond, this is the first catastrophe bond benefiting a residual market insurer to protect against multiple natural perils.

The three year cat bond, Cranberry Re, will cover insured property losses caused tropical cyclones, tropical storms, hurricanes, severe thunderstorms and winter storms causing at least $10 million in the state of Massachusetts on an annual aggregate basis using an indemnity trigger.

The series 2015-1 notes provide three years of risk transfer protection, and attach when MPIUA’s annual aggregate losses exceed $300 million, and exhaust when MPIUA’s annual aggregate losses exceed $1.4 billion.

Hannover Re served as the transformer reinsurer facilitating MPIUA’s access to catastrophe bond-based risk transfer capacity.

John Golembeski, president of MPIUA, said: “Catastrophe bond capacity has been instrumental this year in MPIUA’s transformation from a per occurrence to annual aggregate risk transfer programme.

“In addition to diversifying counterparties and providing incremental capacity as we increased the limit we purchase with the change to an annual aggregate format, the catastrophe bond capacity provides key pricing guidance relative to traditional reinsurance pricing in order to achieve a cost-effective annual aggregate programme. We value our key partners, Guy Carpenter, GC Securities and Hannover Rück SE, in order to achieve these results.”

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