THIS PROBABLY WOULD'VE COUNTED AS A COVERED EVENT

Massachusett’s property insurer of last resort just sold a chunk of risk linked to severe weather to the capital-market investors.

The $300-million, Cranberry re Series 2015-1 marks the first time a residual market insurer has issued a cat bond that provides protection against multiple natural perils, according to a press release put out by various participants.

This is the second cat bond for the sponsor, the Massachussets Property Insurance Underwriting Association. All companies writing basic property insurance in Massachusetts are required to participate in the MPIUA, with losses shared among the member companies.

The deal covers such events as tropical cyclones, tropical storms, hurricanes, severe thunderstorms and winter storms that cause at least $10 million.

Boston’s MBTA authority told ASR earlier this year that it was reconsidering cat bonds in light of the harsh winter season.

Over the three year period covered by the bond, investors get hit with losses only when the annual losses incurred by the MPIU from the covered events exceed $300 million.

The bond pays out a spread of 380 basis points over the Treasury money market benchmark. Fitch Ratings gave the deal a ‘B,’ a good five notches below investment grade.

The bond does not have a third-party qualifier for severe thunderstorms or winter storms. Bondholders instead are relying on MPIUA’s “catastrophe code strategy,” according to Cory Anger, global head of ILS structuring at Guy Carpenter, the deal’s structurer and bookrunner.

In the release Anger added that doing away with the third-party identification source brings cat bonds closer to traditional reinsurance structures. It also could be yet another sign that investors willing to take on more risk for a meaty yield.

The MPIUA is a FAIR plan. The Fair Access to Insurance Requirement sprang from the need to make property insurance more economical following the rioting that plagued American cities in the 1960s.

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