TWCM assisted in providing a Florida insurance company access to the insurance-linked securities (ILS) market through a bond called Oak Leaf Re 2011-1, which covers the top layer of the cedant's program and provides sideways coverage under circumstances where the insurance company's third net retention is exhausted.
The indemnity-based catastrophe bond operates in a similar manner as collateralized reinsurance, and the bond pays out either under a singular massive hurricane event affecting the State of Florida or under multiple events. Claims on Oak Leaf Re 2011-1 are based on the ultimate net loss of the cedant.
"TWCM worked closely with Towers Watson's Florida practice reinsurance brokerage team to construct a bond that would work in conjunction with the rest of the insurance company's traditional reinsurance placement," said Rick Miller, TWCM senior vice president. "The TWCM team dramatically reduced the frictional costs related to ILS issuance. This type of structure will provide middle-market insurance companies access to the capital markets. For far too long, the ILS landscape was primarily the domain of large national insurance carriers that could afford the massive strategic investment."
"From an issuer's perspective, this transaction feels very similar to collateralized reinsurance, with some modest additional costs in order to access new markets, and from an investor's perspective, this transaction caters to a specific subset of dedicated ILS investors that have the expertise to analyze and underwrite an indemnity-based bond using the same data provided to the traditional reinsurance markets," said Ed Hochberg, president and CEO of TWCM.
The catastrophe bond offering underscores Towers Watson's commitment to the risk-linked securities market. In addition to transaction origination and placement, TWCM is very active in the risk-linked securities space through its support of secondary market trading, deep-dive analyses of various catastrophe bonds, and the close coordination between its reinsurance brokerage and capital markets teams. TWCM also provides weekly indicative pricing sheets and trader commentary.
About Towers Watson Capital Markets, Inc.
Towers Watson Capital Markets (TWCM) Inc., is a wholly owned subsidiary of Towers Watson that advises clients in the areas of risk-linked securities, retirement risk transfer transactions and asset risk management services, including evaluating and facilitating risk management solutions involving securities and other capital market instruments.
About Towers Watson
Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at www.towerswatson.com.