‘Earthquake risk’ for sale in global markets

ISTANBUL - Hürriyet

The Turkish Natural Disasters Insurance Authority (DASK) has exported the catastrophe bond worth $400 million for a possible Istanbul earthquake. DHA photo

The Turkish Natural Disasters Insurance Authority (DASK) has exported the catastrophe bond worth $400 million for a possible Istanbul earthquake. If a quake occurs in Istanbul within three years, all of this amount will be used to repair the damage from the quake. The first issued catastrophe bond by DASK had attracted considerable attention from European and American investors, Selamet Yazıcı, President of DASK, said.

Turkey’s first catastrophe bond

The initiative marks the first time in its history that Turkey has exported a catastrophe bond. All of $400 million, which had been collected for the catastrophe bond over three years, will be kept at an independent bank account and invested in short-term American treasury bonds. If the expected Istanbul quake happens in three years, DASK will use the money to pay for the damages arising from the quake. If a quake does not happen, the funds will be returned to investors. “We are providing an additional financial resource to recover the damages from a possible quake in Istanbul by exporting Turkey’s first catastrophe bond, and increasing the DASK’s power of payment to 7.2 billion Turkish Liras,” said Yazıcı.

The Turkish DASK established a company, named Bosphorus 1 Re, in Bermuda to deal with the sales of the catastrophe bond. The company was rated BB+ by Standard & Poor’s, Yazıcı said, adding that the first price for the catastrophe bond was expected to be $100 million in total. “We, however, saw demand six times higher than our first expectations, reaching $400 million for three-year catastrophe bonds. What is really something here is that a possible disaster risk in Turkey is introduced to the financial markets. We had seen many storm or quake bonds in the US, again the bonds for floods or storms in Europe and the bonds for the quakes in Japan for years. Turkey’s first bond for a possible disaster attracted attention mainly from the investors from the US and Europe,” Yazıcı said.

More than 5.3 million houses are now covered by the compulsory earthquake insurance in Turkey. In other words, 32 percent of 17 million houses in Turkey and 42 percent of the houses in Istanbul are now insured against earthquakes.