For the first time, bond investors can gain exposure to the risk of earthquakes in China.
China Property & Casualty Reinsurance Co. has issued a three-year catastrophe bond for $50 million covering that peril, according to a press release.
Called Panda Re 2015-1, the deal priced at 405 basis points over the Treasury money-market benchmark, said Cory Anger, global head of ILS structuring at GC Securities, the deal’s sole structurer and placement agent.
Panda Re is a novelty in two ways: it’s the first time a Chinese insurer has issued a cat bond and the first cat bond with any exposure to Chinese perils. More deals of its kind may be on the way.
“With the Chinese regulators now comfortable with cat bond structures, we believe more opportunities for Chinese cat bonds will arise from insurers and corporates,” Anger said via e-mail.
On its website, catastrophe modeling firm RMS said it provided the deal’s risk metrics.
Between five and ten investors bought into the deal.
Panda Re provides China Re with earthquake protection on a per-occurrence basis.
The bond has an indemnity trigger, meaning that investors in the deal face losses if China Re itself incurs losses of a certain volume from covered earthquakes. Citing the fact that the deal is private, Anger declined to disclose the attachment level, which is the threshold at which bond holders begin to see losses.
Chine Re is entirely state-owned, with 15.09% of the reinsurer held by China’s Ministry of Finance and the remaining 84.91% by Central Huijin Investment. The company has a registered capital of RMB36.4 billion ($5.9 billion), according to its website.
Website Artemis pointed out a few weeks ago that the Chinese government had said it would like to see a cat bond market emerge in China.
A 2013 story in ASR explored why cat bonds are so rare in emerging markets.