Legal considerations & insurance management issues.
Clive O’Connell
McCarthy Denning
London

Catastrophe Bonds and Insurance
• Key elements of insurance
– Insurable Interest
– Proof of loss
• Implications in context of Natural Disasters
– Insurance gap
– Delay
– Lack of Flexibility

Catastrophe Bonds and Insurance
• Solution
– Catastrophe Bonds (CAT Bonds)
• Development of CAT Bonds
• Uses of CAT Bonds

Examples of Government Sponsored CAT Bonds
• New York Metropolitan Transportation Authority
• US National Flood Insurance Program
• Florida Hurricane Catastrophe Fund
• Texas Windstorm Insurance Association
• California Earthquake Authority
• Caribbean Catastrophe Risk Insurance Facility
• Mexican government
• China Re
• Turkish Catastrophe Pool
• Japanese National Mutual Insurance Federation of Agricultural
Cooperatives
• African Risk Capacity

Structure of CAT Bonds
Sponsor SPV
Investors
Collateral
Account
Losses
Premiums
Return of
Principal
Note
Proceeds
Floating
rate +
spread

Structure of CAT Bonds
Protected Cell Companies/Captives (PCCs)

Structure of CAT Bonds
Protected Cell Companies/Captives (PCCs)

Key Legal Issues for CAT Bonds
• Jurisdiction
– Regulatory framework
– Regulatory reputation
– Available structures
– Speed and agility of regulators
– Fiscal regime
– Legal regime
– Enforceability of performance

Key Legal Issues for CAT Bonds
• Established Jurisdictions
– Bermuda
– Cayman Islands
– Gibraltar
– Ireland
– Singapore
– UK
• Local CAT Bonds

Key Legal Issues for CAT Bonds
• Triggers
– Indemnity Triggers
– Index Triggers
– Double Triggers
– Parametric Triggers

Key Legal Issues for CAT Bonds
• Parametric Triggers
– Modellable
– Definite
– Easily determinable
– Objective
– Free from interference
– Properly defined

Legal considerations & insurance management issues.
Clive O’Connell
McCarthy Denning
coconnell@mccarthydenning.com
+44 7774 267149