Palomar Specialty Insurance Co. said Wednesday closed on its first catastrophe bond. The $166 million Torrey Pines Re will provide Palomar with protection against multiple perils over a three-year period.

Catastrophe bonds are a form of reinsurance that offload the risk of a natural disaster to capital markets investors. Proceeds are deposited in a money market account, and, if no peril of sufficient magnitude occurs, investors keep their principal and collect interest. However, in the event of a sufficiently large catastrophe,  the sponsor may keep the principal.

Torrey Pines Re issued three tranches of note, $45 million of Class A notes and $66 million of Class B notes both provide protection against earthquakes in the covered area, and $55 million of Class C notes providing protection against earthquake, named storms and severe thunderstorms.

The transaction, which was upsized from $143 million originally, features a cascading structure and allows Palomar to include business in subsequent years in a broader covered area than in the first year. 

GC Securities, a division of MMC Securities, acted as lead structurer, sole bookrunner and sole initial purchaser and TigerRisk Capital Markets & Advisory acted as co-structurer and co-manager

Palomar, based in La Jolla, Calif., provides residential and commercial coverage in 23 states. In a press release, the insurer’s chief executive, Marc Armstrong, said the transaction ”further strengthens Palomar’s financial condition and robust reinsurance program which will ultimately benefit our customers and distribution partners.”

The company’s debut deal comes as cat bond issuance continues to reach new highs. In the first quarter, a record $2.76 billion was issued in 14 transactions, according to Artemis. Some $27.19 billion of cat bonds are outstanding, roughly $377 million higher than at the end of 2016.

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