b'ILS and Convergence Markets Of particular interest in 2020 were breakthroughstorm-induced storm surge and earthquake insurance transactions, representing significant expansions incoverage from the capital markets through a para-the use of ILS, including new types of risks and newmetric catastrophe bond. The notes are exposed to types of sponsors. Notably, 10 new sponsors enteredstorm surges recorded in areas where a major storm the market in 2020, in spite of the global pandemic.can affect the MTAs transit system or where such Over the course of 2020, mortgage insurance-linkedsurges could be pushed into New Yorks broader notes (MILN), totaling more than $4.3 billion, weremetropolitan area, as well as to earthquakes that may issued by a number of sponsors, including Arch Capitalbe recorded in various NYC metropolitan areas.Group Ltd, Essent Guaranty, Genworth MortgageIn May 2020, USAA returned to the market with the Insurance, National Mortgage Insurance Corporationfirst of its two annual issuances. The transaction, as and Radian Guaranty. Though the amount of MILNusual, provided coverage for losses from various deals in 2020 was down slightly from the record $4.55perils, including other perils. The deal documents billion in 2019, the 11 mortgage transactions issued inwere later revised to include a specific exclusion for 2020 were a new record for the market, increasing thepandemics and communicable diseases at the total MILN issuance to more than $13 billion andrequest of investors, highlighting the uncertainty accounting for 26% of 2020 issuances. brought on by the coronavirus pandemic and the For the first time in any first quarter, catastrophefear of future outbreaks. bond issuances exceeded $5 billion in the firstA total of 24 ILS transactions, consisting of 53 quarter of 2020. In January 2020, Markel Bermudatranches of notes, entered the market in the final Limited (Markel Bermuda), acting as directquarter of 2020, resulting in $6 billion of new risk beneficiary and ceding reinsurance party, enteredcapital. In October 2020, the California Earthquake the ILS market for the first time through StratosphereAuthority returned to the market with its second Re Ltd. Markel Bermuda entered into reinsurancetransaction of 2020 under a new insurer named Ursa agreements with the Issuer and with State National,Re II Ltd., following a successful first issuance under a program fronting specialist. The transactionanother new special purpose insurer in Bermuda. The covered some of the tail risks that State Nationaltransaction was the largest catastrophe bond issu-retains through its work with ILS manager Nephila,ance of 2020 ($775 million) and the largest and provided an innovative solution to add capitaltransformer structure in the history of the ILS market. to Nephilas primary risk-sourcing business model.At the start of December 2020, a new corporate In March 2020, the government of Mexico returnedsponsor, Alphabet, Inc. (Alphabet), the parent of to the ILS market through FONDEN 2020, a first everGoogle, sponsored its first catastrophe bond, cat bond where the net proceeds from the sale oflooking to secure California earthquake protection. the notes will be used by the IBRD to finance sus- A week after pricing its first catastrophe bond tainable development projects and programs in theissuance, Alphabet returned to the market with a IBRDs member countries. The issuance also repre- second issuance. Both transactions showed an sented the longest tenor of any sovereign cat bondimportant expansion by a corporate sponsor to issued, highlighting the Mexican governmentsembrace the insurance-linked securities market for confidence in the ILS market.alternative reinsurance strategies. In May 2020, First Mutual Transportation AssuranceIn December 2020, The Los Angeles Department of Co., the New York State-licensed captive insurer andWater & Power, the largest municipal utility operat-subsidiary of the New York Metropolitaning in the US, sponsored its first catastrophe bond Transportation Authority (MTA) secured a namedoffering. The transaction was the first catastrophe MAYER BROWN 47'