Tokio Marine is first Japanese cat bond sponsor to use sustainable development bond

Tokio Marine Holdings, Inc., through its subsidiary Tokio Marine & Nichido Fire Insurance Co. Ltd., has become the first Japanese insurer to make use of a SOFR-based World Bank Sustainable Development Bond as a permitted investment within its latest catastrophe bond issuance, the company highlighted today.

As Artemis has been reporting, Tokio Marine has been in the market since February and has now secured its targeted $100 million Kizuna Re III Pte. Ltd. (Series 2024-1) catastrophe bond recently, with the reinsurance coverage from the transaction priced at the low-end of initial guidance.

Now, the Japanese insurer has highlighted its use of the proceeds of the catastrophe bond issuance to purchase a sustainable development bond, saying that using this “as collateral for the Kizuna Re III cat bond is supporting the achievement of sustainable development goals and contributing to the realization of a sustainable society.”

Use of proceeds of cat bond issues to invest into financing for sustainable development helps sponsors align their catastrophe bond issues with their own environmental, social and governance (ESG) agendas, while also making the investment more appealing to investors with an ESG focus or mandate.

Tokio Marine used the proceeds of the Kizuna Re III 2024-1 catastrophe bond, that provides it with earthquake reinsurance and was issued out of Singapore, to purchase a SOFR-based Sustainable Development Bond issued by the World Bank Group’s International Bank for Reconstruction and Development (IBRD).

The company said that, through its sustainability strategy, it aims to “solve social issues through business activities and contribute to the realizations of a sustainable society” as a medium- to long-term growth engine and is accelerating its efforts to take climate action, improve disaster resilience, and protect the natural environment.”

The company said that, as part of its goal to improve disaster resilience in what is one of the most disaster-prone countries in the world, Tokio Marine has been a regular user of catastrophe bonds, alongside purchasing traditional reinsurance capacity.

“As a part of these strategies, besides sponsoring the issuance of the Kizuna Re III cat bond, TMNF has elected to invest the proceeds from the sale of the Kizuna Re III cat bond in a SDB issued by IBRD (rather than money-market funds), which is the first example of a Japanese insurer doing so since IBRD notes transitioned from LIBOR to SOFR,” the company explained.

Adding that, “The principal amount of this catastrophe bond raised from qualified institutional investors will be invested in a SDB issued by IBRD under its Global Debt Issuance Facility. The net proceeds of the SDB will be used by IBRD to fund projects, programs, and activities in IBRD’s member countries designed to achieve positive social and environmental impacts and outcomes.”

It’s encouraging to see the use of sustainable development bonds as collateral investments in the catastrophe bond market expanding further beyond just the World Bank, to private insurance sector cat bond sponsors.

The World Bank itself was the first to do so this, since when insurance giant Assicurazioni Generali S.p.A. developed its framework for Green insurance-linked securities (ILS) which saw the proceeds of one of its catastrophe bonds used to refinance a green asset in an effort to help avoid greenhouse gas emissions.

But, Tokio Marine is the first private insurance or reinsurance market sponsor of a catastrophe bond to use a puttable SOFR linked Sustainable Development Bond from the IBRD, which marks an efficient way to structure a cat bond with collateral that can be put to work in supporting sustainable or ESG driven goals.

As a reminder, Gallagher Securities, the insurance-linked securities (ILS) specialist arm of reinsurance broker Gallagher Re was the sole structuring agent for this new cat bond for Tokio Marine, so will have been instrumental in incorporating the sustainable development bond as permitted investments for the collateral, within the overall cat bond structure for this issuance.

You can read all about this new Kizuna Re III Pte. Ltd. (Series 2024-1) catastrophe bond transaction and every other Tokio Marine sponsored cat bond in our Artemis Deal Directory.