Zenkyoren (Japan) has sponsored the issuance of a catastrophe bond “Nakama Re Series 2025-1 Class 1 Principal At-Risk Variable Notes” (hereinafter “Nakama Re 2025-1 cat bond”) on April 16, 2025 making the world’s first use of bonds issued by the Asian Development Bank (hereinafter “ADB”) as collateral. This marks the first occasion on which ADB has issued a special bond to support a cat bond.
With this initiative, Zenkyoren has become the world’s first sponsor to have structured cat bonds where the raised funds are invested in notes issued by international organisations such as the International Bank for Reconstruction and Development (IBRD), the European Bank for Reconstruction and Development (EBRD), and the ADB.
Note: A cat bond is a financial instrument that securitises the risk of large-scale catastrophe events, which have a low probability of occurrence but can cause significant damage when they occur. An issuer can raise funds in preparation for future large-scale disasters through the means of selling cat bond notes to institutional investors.
Outline of Nakama Re 2025-1
This cat bond (5-year maturity, par value of USD 100 million) is issued by Nakama Re Pte. Ltd., a special purpose reinsurance company in Singapore, and sold to institutional investors.
The intention of this issuance is to raise funds for the Building Endowment Policy in preparation for the potential damage caused by major earthquakes in the future.
While institutional investors will receive a coupon payment, the terms and conditions of the issuance are such that in the event that damage arising from an earthquake exceeds the pre-determined policy claim payment amount, a portion (or all) of the scheduled principal amount to be redeemed at maturity will be reduced.
As a result, in the event of a qualifying earthquake, Zenkyoren will recover the investment principal procured from institutional investors as reinsurance payment, which will be used for the payment of claims to its policyholders.
- Issuer: Nakama Re Pte. Ltd.
- Sponsor: Zenkyoren
- Issuance Amount: Face value of USD 100 million
- Period: April 2025 to April 2030 (5-year maturity)
- Peril: Earthquakes in Japan
- Risk Interest Spread: 2.10%
Zenkyoren’s background of utilising ADB notes and features of this issuance
Zenkyoren’s sustainability policy is to contribute to the sustainable development of agriculture and local communities and fulfill its social role as a member of the local community.
Based on that policy, Zenkyoren is promoting responsible investment through ESG investments and stewardship activities which are to contribute to solving social issues such as climate change, whilst gaining investment returns.
In recent years, many institutional investors who invest in cat bonds have become increasingly interested in the SDGs and responsible investment initiatives of sponsors. In previous issuances, Zenkyoren has disclosed above mentioned efforts to investors and raised funds were invested in notes issued by IBRD and EBRD.
The newly issued cat bond is the first in that raised funds are invested in notes issued by the ADB. The ADB works hard to “achieve a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while continuing efforts to eradicate extreme poverty.” Investing in ADB notes will contribute to SDGs and ESGs initiatives in terms of focusing on the Asia and Pacific regions, which have been economically developing in cooperation with Japan, which belongs to the same regions.
Reference: Previous issuance of Cat Bonds
Nakama Re 2023-1 (April 2023)
- The principal raised from institutional investors was invested in bonds issued by EBRD, which supports green projects worldwide.
- During the effective period of the cat bond, Zenkyoren disclosed information on ESG-themed investments to institutional investors.
- Zenkyoren disclosed information to institutional investors regarding its SDGs and ESG investment initiatives.
Nakama Re 2024-1 (April 2024)
- The principal raised from institutional investors was invested in bonds issued by IBRD, which supports projects aimed at eradicating poverty and achieving sustainable economic growth in developing countries.
Zenkyoren will continue to maintain sound management to meet the trust and expectations of its members and policyholders, providing them “Peace of mind” and “Satisfaction.”
