Toa Re Europe’s $25m Silver Crane cat bond triggered in full by Turkey quake

Toa Re Europe, the Switzerland-based European reinsurance arm of Japanese group Toa Reinsurance Company Ltd., has benefited from a full payout under its $25 million Silver Crane private catastrophe bond transaction, after the notes were triggered by industry losses from the Turkey earthquake event from early 2023, Artemis has learned.

Toa Re Europe sponsored the private cat bond at the start of 2022 as the company looked to build on and foster ties to the capital markets for its retrocessional reinsurance arrangements.

The $25 million of notes provided Toa Re Europe with a three-year fully-collateralised source of retrocessional reinsurance against losses from European windstorm and earthquake risks, as well as earthquakes around certain Mediterranean locations, backed by ILS market investors.

As we reported at the time the Silver Crane private cat bond deal was issued, the underlying is an industry loss warranty (ILW) based on an index covering seven per-occurrence layers, designed to protect Toa Re Europe against European windstorms, as well as certain earthquake scenarios, for example covering regions around the Mediterranean Sea and continental Europe.

We’ve now learned that one of the regions covered for earthquake risks was Turkey and therefore the Kahramanmaras Earthquake Sequence event that struck the country in February 2023 was a covered catastrophe under the Silver Crane cat bond notes.

Industry losses from that earthquake rose significantly at the final reporting by PERILS AG, being lifted by 26% to reach TRY 117 billion, which would have been an industry loss of US $6.2 billion at exchange rates when the disaster struck.

We don’t know whether PERILS was the data provider for the industry loss index underlying this Silver Crane cat bond.

We are told by sources that the catastrophe bond was triggered by the earthquake and a recovery been made by Toa Re Europe.

After a significant increase in the industry loss estimate for the Turkey earthquakes, it’s perhaps not surprising the index related to the Silver Crane catastrophe bond rose above its attachment level and then exhausted the coverage fully.

Toa Re Europe did explain in its latest financial condition report that the earthquakes in Turkey was one driver of significant catastrophe losses for the company in 2023. But it also highlighted that having effective retrocession in place supported its financial result that year.

We understand from sources that the retrocessional reinsurance recovery has already been made by Toa Re Europe, with the cat bond collateral now exhausted.

As a result, this provides another example of a catastrophe bond structure working as intended for its sponsor, providing valuable coverage for a major industry loss event under one of the covered perils.

It’s possible then, that we could see Toa Re Europe back in the catastrophe bond market in time, if the reinsurance company looks to replace the eroded coverage with the support of the capital markets and ILS investors.

You can read all about this Silver Crane private cat bond in the extensive Artemis Deal Directory, which contains details of every catastrophe bond issued to date.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.