TD Insurance has secured a $150-million Cat bond, a first of its kind in Canada.
The bond will provide companies under the TDI banner additional reinsurance capacity to protect against earthquakes and severe convective storms. The MMIFS Re Ltd. (Series 2025-1) Cat bond offering will provide coverage for those perils on an indemnity and per-occurrence basis. The Cat bond will be a multi-year risk transfer over a three-year term, effective as of Jan. 17, 2025, to Dec. 31, 2027, says TDI.
“TD Insurance is the first Canadian insurer to sponsor a bond solely focused on catastrophe perils in Canada, which continue to increase across the country,” the company announced in a release.
The dawn of the country’s first Cat-only bond comes at a time when natural disasters in Canada contributed to the costliest insured loss year on record at $8.5 billion, per recent Catastrophe Indices and Quantification Inc. Losses incurred in 2024 blew away the previous record of $6.2 billion recorded in 2016, the year of the Fort McMurray, Alta., wildfire.
“At a time of increasing costs, we’re always looking for ways to provide the best possible pricing to our customers, and this new bond is another tool at our disposal,” James Russell, president and CEO of TDI, comments. “At TD Insurance, being there for our customers during their time of need remains our most important focus, and the issuance of a Cat bond helps ensure we can continue to protect them when it matters most.”
TDI says it was advised by joint bookrunners GC Securities, the capital markets and ILS specialist unit of Guy Carpenter, and TD Securities. GC Securities served as sole structuring agent.
Security National Insurance Company, Primmum Insurance Company, TD General Insurance Company, TD Direct Insurance Company and TD Home and Auto Insurance Company, are all a part of TDI.
What is a Cat bond?
A Cat bond is a security that pays insurance companies only when a predefined disaster risk occurs.
The purpose of Cat bonds is to transfer risks to investors, who receive an interest rate over the life of the bond that “is greater than that of most fixed-income securities,” according to Investopedia.
“If a disaster protected by the bond activates a payout to the insurance company, the obligation to pay interest and repay the [investors] is either deferred or completely forgiven.”
Cat bonds were followed “one of the most difficult periods for the [U.S.] property and casualty (P&C) insurance industry” in 1992, when Hurricane Andrew pushed numerous insurers towards insolvency, according to the Federal Reserve Bank of Chicago. Andrew was, at the time, the costliest hurricane to make landfall in the U.S.
This Cat bond marks the first of its kind in Canada, which tends to experience smaller-scale, less costly Cats than the U.S.
Cats are defined as events that generate insured losses of more than $30 million, according to CatIQ.
Feature image iStock/Francis Lavigne-Theriault
