As Hurricane Isaac hit the Gulf coast as a Category 1 storm, an interesting tidbit came across the wires regarding state-run property insurer Louisiana Citizens Property Insurance Corp.
In a press release, think tank R Street Institute noted that Pelican Re Ã¢â‚¬“ a $125 million catastrophe bond issued by Louisiana Citizens Ã¢â‚¬“ would be triggered if the storm produces more than $200 million in losses for the residual market entity.
If these conditions are met, Isaac would be the first storm ever to trigger a catastrophe bond issued by a state-run insurer.
Over at Artemis blog, there was more discussion:
Pelican Re does not cover pure flood damage so that is in its favour, however we believe storm surge caused by hurricane is covered and wind damage most certainly is. Louisiana Citizens has a great amount of exposure in the coastal areas where hurricane Isaac is currently making the greatest impact. As Pelican Re is an indemnity cat bond it is unlikely we will understand whether there has been an impact for some time as claims come in and losses to Louisiana Citizens are quantified.Ã¢â‚¬
An updated paper on the residual market property plans from the Insurance Information Institute (I.I.I.) notes that a growing number of plans are accessing the capital markets as part of their reinsurance strategy, bolstering their ability to fund losses during hurricane season.
As well as Louisiana Citizens, Florida Citizens also accessed the capital markets in 2012, issuing a $750 million catastrophe bond Ã¢â‚¬“ making it the largest single peril catastrophe bond in the history of the insurance-linked securities market.
They join a growing list that includes North CarolinaÃ¢â‚¬â„¢s Beach and Windstorm Plan and the Massachusetts Fair Plan.
For more information on the catastrophe bond market, check out this I.I.I. backgrounder on alternative risk-financing options.