Earlier this fiscal year, Japanese ICMIF member, Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives, President: Fumio Yanai), announced that, in light of the trends in the catastrophe (cat) bond market, it had issued the first Cat Bond “Nakama 2023-1” that incorporates information disclosure regarding the Sustainable Development Goals (SDGs) and ESG investment initiatives of the issuer (Zenkyoren).
The “Nakama 2023-1” Cat Bond covers the securitisation of earthquake risk and is the first ESG-focused issuance in Japan.
Zenkyoren is a member of the JA (Japan Agricultural Cooperatives) Group. JA Kyosai is where local-level JAs (cooperatives in the JA Group) and Zenkyoren provide members and policyholders with a sense of security by jointly underwriting and administering insurance policies.
Zenkyoren provides long-term cover for buildings and contents through its Building Endowment Policy, is committed to continuously implementing catastrophe risk management as part of its risk diversification efforts. In order for sound management to be maintained even in the event of a large-scale natural disaster, the organisation has continuously issued Cat Bonds (covering earthquake risk in Japan) as part of its risk diversification.
In light of trends in the Cat Bond market, Zenkyoren said it was pleased to announce that it has issued Japan’s first Cat Bond that incorporates information disclosure regarding the SDGs and ESG investment initiatives of the issuer (Zenkyoren).
Outline of Nakama 2023-1
Issuer: Zenkyoren (Nakama Re Ltd.)
Issuance amount: USD 225 million (approximately JPY 30.4 billion, at USD 1 = JPY 135)
Term: April 2023 – April 2028 (5-year maturity)
Coverage: Japanese earthquake
Coupon: Class 1 at 2.5%, Class 2 at 4.0%*
(*) Two classes with different risk profiles were issued.
Outline of the transaction
Zenkyoren says it has concluded a reinsurance agreement with Nakama Re Ltd., a special purpose reinsurance company, in order to transfer the earthquake risk of its Building Endowment Policy. In addition, a Cat Bond (5-year maturity, issuance amount of USD 225 million) covering the earthquake risk will be issued by Nakama Re Ltd. to institutional investors to raise funds for the potential occurrence of a major earthquake in the future.
While institutional investors will receive a coupon payment, the terms and conditions of the issue are such that in the event of an earthquake that exceeds the pre-determined policy claim payment amount, a portion or all of the scheduled principal amount to be redeemed will be reduced.
As a result, in the event of a designated earthquake event, Zenkyoren will recover the investment principal procured from institutional investors as reinsurance payment, which will be used for payments to policyholders.
Zenkyoren will continue to provide ” security” and “satisfaction” to its members and users by responding to their trust and expectations through its efforts to maintain sound management.
Features of the cat bond issuance (first ESG-focused issuance in Japan)
Zenkyoren is promoting ESG investment in fund management in order to contribute to solving environmental issues and achieving other SDGs, based on the mission of JA Kyosai, which is to contribute to the creation of a prosperous and secure community, and the “SDGs Policy of JA Group“ that addresses common global issues (such as environmental issues).
In recent years, many institutional investors who invest in cat bonds have also become increasingly interested in the SDGs and ESG investment initiatives of issuers. Against this backdrop, the following initiatives, the first of their kind in Japan have been added to this cat bond issuance.
Details of initiatives
- Zenkyoren has disclosed information to institutional investors regarding its SDGs and ESG investment initiatives.
- The Cat Bond principal raised from institutional investors is invested in notes issued by the European Bank for Reconstruction and Development (EBRD), which supports green projects around the world.
- During the effective period of the Cat Bond, Zenkyoren plans to disclose information to institutional investors on ESG themed investments made by Zenkyoren.
