Turkish Catastrophe Insurance Pool issues second catastrophe bond

Straddling the Bosphorus, Istanbul is Turkey’s powerhouse, generating more than 40% of the country’s GDP. However, the 14 million people living and working in this vibrant metropolis live under constant threat of severe earthquakes, with the Northern Anatolian Fault running just south of the city beneath the Marmara Sea.

There is no telling when the next earthquake will strike. The government and businesses are acutely aware of the threat, and have already done a lot to strengthen the city’s resilience to destructive seismic activity.

Importantly, the government-sponsored Turkish Catastrophe Insurance Pool (TCIP) – managed by Eureko Sigorta – provides homeowners with compulsory earthquake insurance. In order to further strengthen the pool’s financial protection, TCIP has just sponsored a new USD 100m catastrophe bond.

Turkish Catastrophe Insurance Pool

Building relationships with the capital markets

The cat bond, known as Bosphorus Ltd. Series 2015-1 Class A, is the second of its kind. Providing a three-year cover as a derivative, the bond has a parametric trigger generating an immediate payout to TCIP if the agreed earthquake conditions are met. Complementing the existing traditional reinsurance program that Swiss Re also supports, the bond has an expected loss of 1.50% and pays an interest spread of 325 bps per annum to investors. The proceeds of the bond are invested in IBRD notes as collateral. Swiss Re Capital Markets acted as co-structurer for the transaction.

Andy Palmer, Senior ILS Structurer, explains that Turkey’s ability to transfer disaster risk to the international capital markets will help the country reduce pressure on government budgets and the broader economy in the event of a quake. Additionally, he adds, “Investors welcome this important sponsor back to the market, and recognise the diversification Turkey earthquake risk brings to their portfolios.”

Source: Swiss RE

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