A world-first for Guernsey: volcano catastrophe bond
THE first humanitarian catastrophe bond covering pure volcanic eruption has been completed using a Guernsey insurance-linked securities (ILS) structure.
A $3m. privately-placed issuance, sponsored by the Danish Red Cross, has been brought to market by Replexus and Howden Capital Markets through a Guernsey-domiciled reinsurance structure, Dunant Re IC Ltd – an Incorporated Cell of Replexus ICC (Guernsey) Ltd, which is managed in Guernsey by Aon Insurance Managers.
The 10 volcanoes covered by the CAT bond were selected for the significant humanitarian threat they represent, with at least 700,000 individuals living within 60 miles radius of a potential eruption. They include North America’s second highest volcano, Popocatépetl, Mexico, and Colombia’s Nevado del Ruiz, which killed 23,000 and displaced thousands more when it erupted in 1985.
The other volcanoes covered by the bond include three in Ecuador (Cotopaxi, Tungurahua and Pichincha), two in Indonesia (Merapi and Raung), one in Chile (Villa Rica), one in Guatemala (Fuego), and one in Cameroon (Mt. Cameroon).
The bonds were settled using Replexus’ unique blockchain-based ILS platform, the ILSBlockchain. The catastrophe bond covers the risk of eruption of 10 volcanoes across three continents and raised $3m. from specialist cat bond investors, with the capital set to be used to support humanitarian aid in the aftermath of an eruption. Initial investors in the volcano cat bond included ILS specialist managers Plenum Investments, Schroder Investment Management and Solidum Partners.
Mark Helyar of a director of Replexus Re ICC and legal adviser, said: ‘This deal opens the door to a whole new means of investing in humanitarian risk at a time when many investors are looking for this type of solution - everything from healthcare for refugees to drought relief can be financed and produce investment returns using this type of structure.
‘It helps to release capital for the NGOs who must otherwise stockpile cash in order to be able to step in quickly when things go wrong - but it’s also a fantastic advert for Guernsey and its ability to incubate new thinking and new products. This deal utilises blockchain tech to reduce cost as well as transforming risk which nobody before thought was possible.’
Paul Sykes, Managing Director at Aon, said: ‘We are excited to have been involved in another first for the ILS market supporting Replexus on the establishment and management of Dunant Re IC Ltd. The transaction demonstrates Guernsey's credentials in the ILS and sustainable finance space which we expect to grow significantly in the future.’
Guernsey Finance Chief Executive Rupert Pleasant hailed the deal as a world first. ‘We have been watching the development of this with great interest,’ he said. ‘What a great result for the Danish Red Cross, Replexus and for Guernsey - this is a world first and truly unique example of sustainable finance in the humanitarian market.’
