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GC Securities places $200M catastrophe bond for storm surge risk

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GC Securities places $200M catastrophe bond for storm surge risk

GC Securities, a division of MMC Securities Corp., on Wednesday said it had completed the placement of $200 million catastrophe bond to help New York's Metropolitan Transportation Authority guard against the risk of storm surge.

The three-year bond, MetroCat Re Ltd., will benefit MTA subsidiary First Mutual Transportation Assurance Co., a captive insurance company licensed and domiciled in New York state. GC Securities says this is the first catastrophe bond to protect solely against storm surge risk and will trigger based on calculations made at up to five different locations in the New York City metropolitan region during the event period of a named storm.

Jerry Harley, managing director at Marsh Inc., said the MTA needs a new approach to manage its catastrophe risk in light of the damage caused by Superstorm Sandy.

Working with sister company Guy Carpenter & Co. L.L.C., “we were able to provide a capital market-based solution that gives the MTA the flexibility to spread risk over a long-term solution and introduce new sources of reinsurance capacity to replace post-storm market capacity reductions,” Mr. Harley said in a statement.

MTA Chairman and CEO Thomas F. Prendergast said the deal represents the start of a long-term strategy to diversify the MTA's risk management regime.

“In the aftermath of Superstorm Sandy, the traditional avenues we use for insurance and reinsurance contracted dramatically, making it exceedingly difficult for the MTA to obtain insurance,” Mr. Prendergast said in the statement. “This strengthens our position with regard to future interactions with the traditional reinsurance market.”

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