Reinsurance intermediary Guy Carpenter and catastrophe modeling firm Risk Management Solutions say they helped the Metropolitan Transportation Authority sell the first-ever bond to protect against storm surge.
With the bond, the MTA secured $200 million in insurance protection to help pay for damages like those it suffered during Superstorm Sandy last year. Repair costs totaled $4.8 billion from the late October storm.
“In the aftermath of Superstorm Sandy, the traditional avenues we use for insurance and reinsurance contracted dramatically, making it exceedingly difficult for the MTA to obtain insurance,” says Thomas F. Prendergast, MTA chairman and CEO. “We anticipate that this deal represents the start of a long-term alternative reinsurance option that diversifies MTA's risk management strategy.”
MTA's captive insurer, First Mutual Transportation Assurance Co., entered into the contract with special-purpose insurer MetroCat Re Ltd. in a deal brokered by GC Securities, a division of MMC Securities and a member of Marsh and McLennan Cos.
The coverage, with what is being described as a first-of-its-kind trigger structure, protects the MTA against storm surge through August 5, 2016.
Chi Hum, global head of ILS distribution for GC Securities says the MTA “should consider this an invitation from the capital markets to make regular use of this diversifying and deep source of reinsurance capacity.”
RMS says its Version 13.0 North Atlantic hurricane model was used for the risk analysis related to the bond. The model is the only one in the industry to quantify storm surge through the entire lifecycle of a storm, the firm says.
“Our model indicates that there is a 20 percent chance that a U.S. hurricane will cause more damage from surge than from wind, which rises to 40 percent along the northeast coast,” says Peter Nakada, managing director of capital markets at RMS, in a statement.
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