Massachusetts Fair Plan Gets $96M Catastrophe Bond

July 12, 2010

The Massachusetts Property Insurance Underwriting Association (MPIUA) has received a $96 million catastrophe bond issuance that transfers hurricane risk in Massachusetts to the capital markets, a number of reinsurers announced.

Munich Re acted as joint lead manager in the transaction, reinsured the risk via its U.S. operation and placed the bond with institutional investors in the European Union and Switzerland via its placement entity.

The bond provides cover against extreme event losses caused by hurricanes in Massachusetts with a statistical return period of around 70 years. The bond pays interest for the risk at 700 basis points and is rated BB by Standard & Poor’s.

“The capital markets constitute a good complementary risk carrier for specialized peak risks like Massachusetts hurricane,” said Tony Kuczinski, president and CEO of Munich Reinsurance America.

Guy Carpenter & Co, which also participated in the transaction, said the program is the MPIUA’s first-ever catastrophe bond program established via a transformer reinsurer — in this case, Shore Re Ltd., a Cayman Islands-based insurer. The bond provides the MPIUA with $96 million in collateralized, per-occurrence protection through June 30, 2013, against the effects of Massachusetts hurricane risk.”

“This is a great example of the benefits of a fully coordinated effort — in this case, between the MPIUA, 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 MPIUA’s entire capacity purchase program,” said David Priebe, chairman of Global Client Development at Guy Carpenter.

Source: Munich Re, Guy Carpenter & Co.

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