Assicurazioni Generali has stipulated a reinsurance contract with Lion II Re DAC, an Irish company which for a period of four years will cover possible catastrophic losses suffered by the Italian group following storms and floods in Europe and earthquakes in Italy.
“The Lion II Re transaction transfers part of the risk to the bond investors – reads the Generali press release – thus optimizing the Group's protection against catastrophes. Lion II Re DAC has issued a tranche of debt securities for 200 million, in order to finance the commitments undertaken under the reinsurance contract. The transaction is the first of its kind ever, offering indemnity protection against flood risk in Europe, as well as the first to combine coverage of three different European catastrophe risks.
This transaction “confirms the group's willingness to continue along the path undertaken in 2014 with Lion I Re – comments Generali's group chief insurance officer, Valter Trevisani – aimed at transferring part of the risk to the capital market through innovative issues. This latest product has proved to arouse great interest among investors like the previous issues which allow the Group to broaden the spectrum of counterparties, favoring credit risk mitigation while guaranteeing a good level of flexibility".
Generali's group chief financial officer, Luigi Lubelli, recalled that “for the group this is the third ILS-type bond over the last three years and the success achieved provides further confirmation of its now consolidated presence in the ILS market. The use of this instrument, and more generally of alternative techniques for the transfer of risks, also for efficient capital management purposes, is an integral part of the flexible and innovative approach with which the Group intends to implement its capital strategy”.
The positive outcome of the placement of ILS debt securities on the capital market made it possible to guarantee the protection provided by Lion II Re DAC to Generali at an annual premium of 3% for a total of 200 million of reinsurance coverage. This amount will be returned by Lion II Re DAC to the investors if in the 4 years of operation of the transaction no events occur for the Generali Group, deriving respectively from storms or floods in Europe or earthquake in Italy, in excess of the pre-set damage thresholds for each type of risk.
Lion II follows the Lion I cat bond issued in 2014 which only covered the storm in Europe and Horse Capital I issued in 2016 which covered the RCA business. The transaction provides Generali with fully collateralized coverage with highly creditworthy assets for the entire risk period. The Group will continue to closely monitor this market which it deems relevant for its capital management and insurance risk transfer strategies.
