EQECAT Provides Risk Analysis for Largest Japanese Cat Bond

Oakland- based EQECAT Inc., a division of ABSG Consulting of Houston, Texas, announced that it has provided the risk analysis for a $470 million bond consisting of three individual tranches covering potential losses from second event occurrences of major earthquakes and/or typhoons in Japan over the next five years.

The bulletin described it as “the largest cat bond issued to date based on total amount of risk transferred.” It was issued through Phoenix Quake Ltd., Phoenix Quake Wind, Ltd., and Phoenix Quake Wind II, Ltd., described as “special purpose Cayman Islands companies established by Swiss Re on behalf of Zenkyoren, the Japanese National Mutual Insurance Federation of Agricultural Cooperatives.”

EQECAT president Rick Clinton said he was pleased that the company had been able to provid Zenkyoren with the analytical support for this significant transaction. He also noted that this is the second transaction to utilize “second generation parametric triggers” for both wind and earthquake perils. they were described as enabling “bond issuers to significantly improve risk transfer efficiency, compared to traditional parametric offerings.”

Clinton noted, “the use of second generation parametric index loss triggers enables issuers to transfer risk with lower basis risk than with previous first generation parametric triggers based on earthquake magnitude or storm track central pressure.” He added that “the advantage comes from selecting physical severity parameters that correlate well with building damage and that are measured at or near the location of the underlying portfolio of insured risks.” However, investors, relying on credible independent scientific agencies, still achieve high transparency and rapid loss determination.