Germany’s Allianz has reconfirmed its commitment to catastrophe bonds, as a useful and generally accepted method of transferring a certain amount of risk to the capital markets. It underlined that commitment with the announcement of the closure of a new cat bond covering US hurricane and earthquake risks, the fourth “takedown under the Blue Fin program with an issuance size of $40 million.”
In an interview on the Allianz web site, Olaf Novak, Chief Risk Officer of Allianz Reinsurance, defined cat bonds in general terms as “insurance-linked securities which transfer a specified set of natural catastrophe risks into the capital market. Insurers like Allianz have regional peak catastrophe exposures and these companies pass on portions of these risks like European windstorm or US hurricane to the reinsurance market.”
He also explained that in addition Allianz can “act as a sponsor and pass on catastrophe risks to an investor and this means the capital market. Catastrophe bonds are normally multi-year deals. Their trigger mechanism is normally not related to indemnity but more to model losses or a specific set of event parameters which allows a fast pay-out in case of a qualifying event.”
Like its predecessors, Allianz’ new Series 4 catastrophe bond securities, issued by Blue Fin Ltd., are “denominated in US dollars and offer investors a coupon of 8.50 percent above the yield of US Treasury money market funds.” They cover the “risk of losses from hurricane and earthquake events in the US based on a modeled loss trigger mechanism, and are scheduled to be redeemed in May 2013. As with previous cat bonds under the Blue Fin program, Allianz Re, the reinsurance division of Allianz SE, is responsible for structuring the new transaction.”
Clemens von Weichs, CEO of Allianz Re, explained that the capital markets have developed to represent a considerable source of complementary protection for US perils. “The occurrence of the March 11 Japanese earthquake and tsunami was a test for the ILS market, which proved to be in good shape and is fully functioning. As a repeat sponsor, consistency is a crucial market feature for us.”
Novak pointed out that the new Blue Fin Series 4 cat bond provides multi-year protection at similar rates as traditional reinsurance from a diversifying source on a fully collateralized basis. The new tranche is structured to provide protection against combinations of medium-sized and large events.
“The Blue Fin shelf program enables Allianz to efficiently complement our reinsurance program with non-traditional protection elements on a regular basis,” he stated. “The existing infrastructure has allowed to optimize both lead-time and cost and facilitated the decision to buy more term-aggregate protection.”
Source: Allianz
Topics Catastrophe USA Reinsurance Allianz
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