Bosphorus Re (TCIP, 2013)
A 400-million-dollar catastrophe bond issued in 2013 for the Turkish earthquake insurance pool, triggered by Istanbul's seismometers.
A public catastrophe insurance pool concentrates an overwhelming share of its exposure in a single city, and the traditional reinsurance market sells it that peak at a high price. The Turkish pool, TCIP, therefore sought capacity from investors in 2013 through a Bermuda vehicle, Bosphorus 1 Re, which issued principal-at-risk notes over three years. The trigger is parametric: it does not read the pool's claims but the ground motion recorded by the seismometers of the Istanbul Earthquake Early Warning and Rapid Response System. This choice settles the payment delay and makes the measure impossible for any interested party to influence, at the cost of basis risk between measured acceleration and actual damage. The transaction shows how a public scientific network becomes the measurement agent of a financial contract.
Announced on April 30, 2013, the 2013-1 series was placed for 400 million dollars, with a three-year risk period to May 3, 2016, a BB+ rating from Standard & Poor's and a 2.50% coupon; demand was about six times the initial target. The protection targeted an event with a return period of about one hundred years in the Istanbul region.
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