Behind the Non-Life Cat Bond Transaction of the Year

From Willis, second left to second right: Bill Dubinsky, Simon David, Tony Ursano, Adam Beatty and Howard Bruch

I was fortunate enough to be back in London last month for the annual Trading Risk Awards and even more fortunate to be part of a winning team after Willis Capital Markets & Advisory (WCMA) and California State Compensation Insurance Fund (the state fund) won the Non-Life Transaction of the Year.

The Golden State Re deal comprised a number of creative features that were firsts for not only WCMA, but the insurance-linked securities market. From a workers’ compensation perspective, this structure of this bond opens up a whole new market of capacity for catastrophic risk outside of the traditional reinsurance market.

You can find further details in our press release on, but here’s an insight into what made this deal so groundbreaking:

New Peril

As the first catastrophe bond designed exclusively to cover workers’ compensation catastrophe exposure we introduced a new peril to the market. It featured a new and unique risk profile where investors are exposed to U.S. earthquake events, but the time of day and the day of the week are a significant determinant of whether the event will result in a loss to the bond. This creates additional diversification within investors’ U.S. earthquake exposures.

New Sponsor

And as the first deal from the California State Compensation Insurance Fund, it also introduced a new sponsor. This is important because attracting new sponsors is critical to the continued growth and development of the catastrophe bond market. Recent years, however, suggest that this is not always easy to do. In 2011, of a total 21 non-life natural catastrophe transactions, only three were from new sponsors (2012 YTD: 2 new from 15 deals, 2010: 3 new from 23 deals).

Innovative Structuring and Modeling

This was the first transaction to make exclusive use of the RMS casualty modeling for workers’ compensation losses as a result of earthquakes. An innovative modeled loss trigger applies publicly available USGS “Shake Map” data, including the time of the event, to a notional portfolio of risks to calculate whether or not a loss has occurred.

If the model determines that a loss has occurred, the state fund will be able to collect within a few months of the event, creating a considerable cashflow advantage compared to the relatively long-tail nature of reinsurance recoveries on paid workers’ compensation losses.

Effective Teamwork

This transaction is also an excellent example of how teamwork and co-operation between Willis Re and WCMA can deliver innovative solutions for our clients.

We are delighted that the state fund management team gave us the opportunity to execute this award winning transaction on their behalf.


Adam Beatty

Guest blogger Adam Beatty is managing director of Willis Capital Markets & Advisory. He has been advising clients and executing transactions related to reinsurance capital markets and Insurance-Linked Securities (ILS) since 2006 and is based in New York. Adam joined Willis Re in 2004 as Chief Financial Officer. From 1998 to 2004, Adam worked within Willis’s in-house corporate finance and M&A team.

Willis Capital Markets & Advisory (WCMA) is a marketing name used by Willis Securities, Inc. (WSI), a licensed broker dealer registered with the U.S. Securities and Exchange Commission and member of FINRA and SIPC, and Willis Capital Markets & Advisory Limited (WCMAL), an investment business authorized and regulated by the UK Financial Services Authority. Both WSI and WCMAL are Willis Group (Willis) companies. Securities products are offered in the U.S. through WSI and in the U.K. through WCMAL. Readers should not place any reliance on any forward-looking statements, noted by such words as “should,” “may,” “expect,” “likely” and “believe” contained herein. WCMA is not providing any advice on tax, legal or accounting matters and the recipient should seek the advice of its own professional advisors for such matters. Nothing in this communication constitutes any legal or financial advice or an offer or solicitation to sell or purchase any securities. Information contained in this communication is based on sources believed to be reliable, but no representation is being made as to the accuracy or completeness of such information. Unless otherwise indicated, any information contained in this communication is as of its date only and is subject to change. All the securities referred to herein having been sold, this announcement is a matter of record only.

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