NZ EQC targets debut $250m Totara Re cat bond issued out of Singapore

New Zealand’s Toka Tū Ake EQC, also known as the Earthquake Commission, has entered the catastrophe bond market for the first time, seeking NZ $250 million (around US $156m) of multi-peril reinsurance from the capital markets with a Totara Re Pte. Ltd. (Series 2023-1) issuance.

Toka Tū Ake EQC, is New Zealand’s state-owned residential property disaster insurance entity.

As we reported in February 2023, the Earthquake Commission (EQC) has sharpened its focus on catastrophe bonds of late, exploring the potential to add them to its reinsurance program.

There is plenty of scope for cat bonds to play a role, as the EQC renewed a record $7.2 billion reinsurance tower in June 2022.

As we also reported at that time, less than 2% of that capacity came from fronted insurance-linked securities (ILS) fund sources.

As a major reinsurance buyer, clearly it would only be a matter of time until we saw the EQC enter the cat bond market and 2023 is the year, as the insurer targets its debut cat bond issuance.

For its debut catastrophe bond, we’ve learned that the New Zealand Earthquake Commission has turned to Singapore, presumably set to benefit from the Singapore ILS grant program, to help in lowering some of the frictional costs of this first deal.

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Totara Re Pte. Ltd. has been established in Singapore as a special purpose reinsurance vehicle for the issuance of series of catastrophe bond notes, we are told.

For its first issuance, Totara Re Pte. Ltd. will issue a single tranche of Series 2023-1 Class A notes that will be sold to catastrophe bond funds and investors, with the proceeds used to collateralize a reinsurance agreement between the vehicle and the NZ Earthquake Commission.

It’s understood that the issuance is currently targeted at NZ $250 million in size, which is roughly US $156 million at today’s rate.

The notes are designed to provide the NZ EQC with a four year source of collateralized reinsurance protection to the end of May 2027, structured on an indemnity and per-occurrence basis.

A range of perils are covered, sources said, with the Totara Re cat bond set to cover the EQC against losses from earthquake, tsunamis, landslide, volcanic eruption, hydrothermal, storm, and flood events.

The subject business is all residential property and land related, but we’re told that for the perils of storm and flood only residential land losses are covered, not properties.

The notes can attach after NZ $2 billion of losses and would exhaust payouts at NZ $2.25 billion.

The NZ $250 million of notes will come with an initial attachment probability of 3.66%, an initial expected loss of 3.42% and we’re told their initial price guidance is in a range from 8% to 8.75%.

The only historical loss event in New Zealand that could have reached the attachment point for the Totara Re cat bond notes is said to be the Canterbury earthquake events.

This is a true diversifier for catastrophe bond investors, given their are just a handful of global retrocession cat bonds that feature some exposure to New Zealand, albeit a very small contribution to expected loss in each case, examples being Hannover Re’s 3264 Re and Arch Capital’s Claveau Re deals.

So this Totara Re Pte. catastrophe bond from the NZ EQC is relatively unique in its exposure and that could make it an attractive option for some cat bond funds and investors, who often lack opportunities for diversification.

You can read all about this new Totara Re Pte. Ltd. (Series 2023-1) catastrophe bond and every other cat bond issuance since the market began in our extensive Deal Directory.