New York MTA in Storm Surge Catastrophe Bond First

Superstorm Sandy highlighted the enormous risk of storm surge along the Gulf and Atlantic coasts, so we’re interested to read that the captive insurer of the New York Mass Transit Authority (MTA) has accessed the capital markets to cover it in the event of storm surge resulting from a named storm.

Artemis blog reports that this is the first time in the history of the catastrophe bond market that a transaction has provided cover just for storm surge:

Hurricane and tropical storm induced storm surge is included in many U.S. wind cat bonds, so it is not particularly diversifying, but it has never been structured into a cat bond as the sole peril in this way and is an interesting addition to the market that could spur more issuance of storm surge cat bonds. It’s another sign of the increasing maturity and flexibility in the cat bond market, as well as the increasing appetite investors are showing for catastrophe risk.†

Artemis adds that the sponsor, the captive insurer of the New York Mass Transit Authority (MTA), has significant exposure to storm surge, as evidenced by the losses it faced from last year’s hurricane Sandy:

The MTA suffered a loss in the region of $5 billion from the storm, predominantly from surge due to flooded transit tunnels and subways, so it is encouraging to see it turn to the catastrophe bond market for a new source of reinsurance protection.†

The $125 million catastrophe bond will be issued by First Mutual Transportation Assurance Co. (FMTAC), the MTA’s captive insurer and sold via MetroCat Re Ltd, a Bermuda domiciled special purpose insurer.

Artemis says the deal offers protection against named storms that generate a storm surge event index that equals or exceeds 8.5 feet for Area A or 15.5 feet for Area B. Area A includes tidal gauges located in The Battery, Sandy Hook and Rockaway Inlet, while Area B includes tidal gauges in East Creak and Kings Point.

Business Insurance has more on this story.

Check out I.I.I. facts and statistics on catastrophe bonds.

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