Tag Archives: East Lane Re

ILS price check: 20% more for 20% less

Guy Carpenter issued an update today on the Cat Bond market stating that the “influence from direct capital market participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, put significant pressure on global catastrophic reinsurance pricing”. They also made the point that “spreads have tightened between indemnity and other trigger types, sponsors were inclined to take advantage of investors’ openness to indemnity triggers to reduce coverage basis risk without a material increase in pricing relative to non-indemnity trigger pricing”.

The always interesting Global Property Catastrophe ROL index showed an 11% fall at January 2014.

I find it informative to compare current pricing to the past and the latest deal from Chubb covering US wind and quake risk from the NorthEast is hot off the press. East Lane Re VI increased in size to $270 million due to demand and got pricing at the bottom of the (already revised) pricing range at 275 bps. Thus the “20% more for 20% less” of the title of this post. The deal attaches in excess of $3 billion, above any historical storms (the largest of which is the 1938 New York storm at $2.9 billion), with a modelled 0.87% attachment and 0.77% exhaustion probability.

Although I am not sure if all of the conditions are exactly the same, it looks like Chubb got a good deal (for 4 years) compared to Class A of the East Lane IV Ltd, their expiring 2011 deal, which also covered US wind and quake risk in the NorthEast in excess of $3 billion. That one paid a 575 bps coupon, a whole 300 bps above the pricing they got this month!