Prologis highlights Archipelago support for its first catastrophe bond

Prologis, Inc., the logistics, warehousing and supply-chain focused real estate owner and investor that sponsored its first catastrophe bond in December, a $95 million Logistics Re Ltd. (Series 2021-1) cat bond, has highlighted the support of Hemant Shah’s artificial intelligence property data and analytics firm, Archipelago.

Shah, the founder and former CEO of risk modelling specialist RMS, launched Archipelago in 2020, with the goal to create an artificial intelligence (AI) focused technology and data analytics service to enhance how commercial property risks are understood by their owners, risk managers, brokers and insurance providers.

The company essentially digitalises property asset information, enabling the risk to be assessed and analysed on a more granular basis, informing risk management decisions for clients and enabling better insurance outcomes, as well as an enhanced ability to identify and enter into risk transfer arrangements on large portfolios of property and real estate assets.

One of the benefits of a granular and informed view of property related risk, for owners and investment holders, is an ability to assess peak exposure concentrations and peril specific factors, plus allowing insurance market challenges, such as capacity shortages or cost implications to be better assessed, navigated and therefore risk transfer alternatives be sought and compared on a more informed basis.

Which, it transpires, helped Prologis in going down the catastrophe bond route, as an alternative source of insurance and risk transfer, for the first time.

Prologis’ first catastrophe bond, Logistics Re Ltd., enabled the company to access the capital markets for disaster insurance protection, eventually securing it a $95 million source of US earthquake insurance protection, covering the 50 states but with California the peak exposure.

The Logistics Re cat bond provides Prologis with earthquake insurance protection via a reinsurance arrangement with Hannover Re, with the $95 million of protection kicking in after an earthquake event drives more than $350 million in losses, covering a percentage of the Prologis’ losses up to detachment at $550 million.

When large corporations look at catastrophe bonds it is typically because the traditional insurance market either cannot service their needs, or is too expensive, at certain levels of loss and exposure.

Being able to identify exactly where the capital markets could provide a more efficient source of insurance, or reinsurance to back your insurance, is critical and today, with the explosion of new tools to help ceding companies better understand their risk exposures that is becoming an easier task.

Which is where Archipelago comes in, by enhancing Prologis’ understanding of its exposure to earthquakes, the technology will have helped Prologis to identify the layer of its risk tower that could be most appropriately transferred to the capital markets in catastrophe bond form and where it might be most economical to do so.

“Digital, and data-driven decisions are fundamental to how we run our business,” Ed Nekritz, Chief Legal Officer and General Counsel of Prologis explained.

“This includes how we manage our risk and insure our properties. We chose Archipelago to increase the connectivity and comprehensiveness of the detailed data we use to define our exposures. Archipelago’s already made an impact, including by supporting our recent Catastrophe Bond.”

Another client of Archipelago, LVMH, is also using the companies tech to enhance its understanding of its property risks, to better inform its risk transfer.

“We chose Archipelago to create and manage the most current, interactive and comprehensive representation of our portfolio property risk data to drive better engagements with the markets and superior outcomes,” LVMH’s Group Risk Management Director, Alain Lagesse said.

By better understanding their property values, exposures and therefore values-at-risk, in a far more granular and real-time manner, large corporate buyers of insurance and risk transfer stand better-equipped to engage with insurance-linked securities (ILS) markets, while they are also better able to provide the kind of data to potential ILS or cat bond investors that can give them the comfort to allocate to transactions.

We often talk about the ability of the ILS market to provide a source of financing through which large asset-owners or asset-holders (so corporates, investors, funds, etc) can carve out exposures that sit outside their risk tolerances and work with investors to transfer a portion of their exposure to them.

This goes for standard physical property risks, but also embedded risks in portfolios of assets such as climate exposure.

Technology is making this increasingly possible and we expect this will, over time, drive an increasing flow of corporate sponsors, as well as other owners or holders of assets with embedded risk in them, to the ILS market and to the catastrophe bond structure, as they look to engage with alternative and efficient sources of risk capital.

Archipelago is one of the new-breed of technology companies helping buyers of protection to make better-informed risk transfer decisions.

“With over $7 trillion in total insurable value now managed on Archipelago, we are quickly emerging as the system of record for property owners’ collection, management and enhancement of asset risk data,” Hemant Shah, CEO, and co-founder of Archipelago explained.

Adding that, “Institutional commercial real estate businesses like Prologis and JLL have found tremendous value in the use of Archipelago. We’re thrilled to be expanding our platform to corporations like LVMH who may not own the real estate they operate in but still have a need to organize their risk data in a centralized, AI-powered platform.”