Allianz Global Corporate & Specialty has successfully closed an innovative catastrophe bond ("cat bond") to transfer the risk of severe river floods in Great Britain and earthquakes in Canada and the US excluding California in an amount of 150 million US dollars. Part of a one billion dollar program, this is the first note issued by Blue Wings Ltd., a special purpose vehicle launched for the benefit of Allianz Global Corporate & Specialty.
The securities are issued by Blue Wings Ltd., a Cayman Island-based company, for the benefit of Allianz Group through its corporate insurance arm, Allianz Global Corporate & Specialty. The transaction is fronted by Swiss Re, which also acted as arranger and lead manager.
The securities offer bondholders a return of 3.15 percent over LIBOR, have a Standard & Poor’s rating of BB+, and the insurance risk, modeled by Risk Management Solutions (RMS), is 0.54 percent per annum. The cover is fully collateralized with minimal credit exposure.
First cat bond ever to cover floods
Risk transfer mechanisms of the future
"We are thrilled to launch this tranche, the first part of a one billion dollar program that can be expanded to cover other risks," said Axel Theis, CEO at Allianz Global Corporate & Specialty.
"This is a flexible tool and an important step in risk transfer mechanisms of the future enabling us to manage and optimize our exposure to catastrophic events."
This cat bond holds two risks: first, earthquake in Canada and the US excluding California, using a "modeled loss" trigger and second, river flood in Great Britain using a second-generation parametric index trigger, the innovative part of the project.
Robust index for river flood
The index for flood is based on flood depths that will be calculated in more than fifty locations across Great Britain and was developed with the technology of RMS. As part of the post-event process, Halcrow Group, a British engineering company, will provide the information necessary for the index calculation, the ultimate value of which will determine whether or not investors are losing part of their investment.
"For river flood we have developed a robust index which has been welcomed by investors as it provides a transparent and objective mechanism. It enables us to limit the basis risk without restricting our portfolio," explained Amer Ahmed, Chief Risk Officer at Allianz Global Corporate & Specialty.
Strong demand
The reception of the bond in the market was excellent and the notes were subject to strong demand. It is the stated aim of Allianz Global Corporate & Specialty and the Allianz Group to strengthen their expertise in this area and bring it closer to clients over the medium and long term.
Allianz Global Corporate & Specialty
Allianz Global Corporate & Specialty was founded in 2006. With a turnover last year of some three billion euros, it is one of the world's leading insurers for corporate and specialty clients, providing unique end-to-end risk solutions with its unequalled industry expertise and knowledge.
What is a cat bond?
Catastrophe bonds (also known as cat bonds) are risk-linked securities that transfer a specified set of natural catastrophe risks from the issuer, such as Allianz Global Corporate & Specialty, to the investors.
The investor subscribes for shares in a special purpose entity such as Blue Wings Ltd. If a defined natural catastrophe does not occur, he receives a return that includes a premium for the risk in addition to the principal on its maturity date.
But if the pre-defined event occurs and triggers the cat bond, then the principal initially paid by the investors is forgiven, and is instead used by the sponsor to pay their claims to policyholders.
As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer.
Link to the disclaimer
No offer
All the securities referred to herein having been sold, this announcement is a matter of record only. The notes referred to herein have not been and will not be registered under the securities laws of any jurisdiction, and any offer or sale thereof may only be made in a transaction exempt from registration.