Workers comp insurers in the U.S. may follow the lead of the California State Compensation Insurance Fund (SCIF) which will soon close on a new $125 million catastrophe bond that will cover workers compensation claims resulting from earthquakes in the United States.
The new special purpose insurer in Bermuda, Golden State Re Ltd, will issue three year, Class A senior notes for SCIF, in a deal being put together by Willis Capital Markets & Advisory, according to a report from Standard & Poor’s (S&P) Corp. The catastrophe bond is expected to close on December 9th and will cover earthquake related risks until December 2014. The S&P report did not specify the interest rate or principal amount of the bond, but a report in the Insurance Insider described it as a ‘planned $125mn cat bond’.
SCIF, the biggest workers compensation insurer in California, said in a statement it is “in the process of evaluating our reinsurance and will have more to say on this issue after we are done.” Analyst Gary Martucci, co-author of the S&P report, said other workers comp insurers may also want to review ways to transfer disaster related losses.
Mr. Martucci said: ”Those other state comp funds that have earthquake risk or hurricane risks…might consider this as well. It expands the supply of potential reinsurance, which could lower the cost.” The S&P report said the bond would cover
Earth
Earthquake risk in California account for about 99.99pc of risk exposure covered by the bond, but Mr. Martucci said that California workers who are injured as the result of a major earthquake out of state will be covered by the bond, which has an attachment probability of about .55pc. Three earthquakes in U.S. history including the 6.7 magnitude quake in Northridge, California, caused losses greater than the bond’s attachment point.
Martucci describes the risks covered by the new bond as ‘relatively remote’, explaining, “It’s not working layer coverage. S&P gave the bond a ‘BB+’ rating, which means the notes would have ‘quality and protective characteristics [that] may be outweighed by large uncertainties or major exposures to adverse conditions.”
