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GC Securities Announces Completion of 144A Catastrophe Bond: Johnston Re Ltd.

Source: Guy Carpenter

Posted on 13 May 2010

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Guy Carpenter & Company, LLC, a leading global risk and reinsurance specialist, and GC Securities, announced this week the completion of a $305 million, two-class note issuance from a new 144A catastrophe bond program, Johnston Re Ltd., a Cayman Islands exempted company licensed as a Class B insurer, to benefit the North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association (collectively the NC JUA/IUA).

This program continues on the success of the 2009 transaction, Parkton Re, and provides the NC JUA/IUA a combined USD505 million in catastrophe bond protection to manage its hurricane risk for the 2010 hurricane season.

GC Securities assisted the NC JUA/IUA in securing the transforming reinsurer and facilitating the transfer of the catastrophe risk to Johnston Re Ltd. GC Securities also served as sole bookrunner and co-lead manager on the note issuance as well as joint structuring agent of the catastrophe bond program. The note issuance ultimately provides the NC JUA/IUA with USD305 million of fully collateralized, per-occurrence protection through May 1, 2013, against the effects of North Carolina hurricane risk.

The bond was tailored to be optimized with the existing Parkton bonds as well as the NC JUA/IUA's traditional reinsurance program. Specifically, the Class A Notes incorporate an innovative “first of its kind” non-event, time activated drop-down feature and coupon step-up to replace the Parkton bonds when they mature in May 2011.

The catastrophe bond utilizes an indemnity trigger structure based on the Ultimate Net Loss of the NC JUA/IUA in the event of a hurricane. The flexible structure allows for the bifurcation of capital at different cost implications upon the occurrence of covered events into (i) capital used for loss development for prior covered events, and (ii) remaining capital available for future covered events.

Johnston Re includes a feature originally developed in Parkton, in which the release of non- needed capital can occur if the bond is extended beyond the risk period for claims development.

Cory Anger, Global Head of ILS Structuring, GC Securities, said, ”This transaction incorporates the structural advances achieved in Parkton Re, the NC JUA/IUA’s first cat bond, as well as several first-of-their-kind features to optimize the performance of Johnston Re throughout its three-year risk period. The structural design of Johnston Re shows that further benefits can be achieved in the catastrophe bond marketplace, regardless of whether it is a first issuance or subsequent issuance for a sponsor.”

“This second issuance by the NCJUA/IUA sends a strong signal to the investor community that accessing cat bond capacity is an integral part of a capacity purchase program. The investors rewarded this message with firm support, as evidenced by the strong book and price execution," said Chi Global Head of Distribution, GC Securities.

David Priebe, Chairman of Global Client Development, Guy Carpenter, said, “This is a great example of the benefits of a fully coordinated effort – in this case, between the North Carolina JUA/IUA, GC Securities, Guy Carpenter’s broking team and Munich Re – resulting in a fully integrated multi-year cat bond layer delivered in coordination and optimized within the context of the NCJUA/ IUA’s entire capacity purchase program.”