The insurance protection has been funded through the offering of "catastrophe bonds" by MetroCat Re Ltd., a special purpose insurer, MTA said.
The move comes as MTA New York City Transit embarks on extensive work to rehabilitate key tunnel infrastructure flooded last October by Sandy. Damage caused by corrosive brackish water on signals and other equipment caused severe operating disruptions to service after the water was removed and service resumed in November.
MTA said this was the first time it has accessed the capital markets to manage its property damage risks, and it is the first catastrophe bond ever issued to protect solely against storm surge. The MTA's premium cost is well below quotes that MTA received this spring for traditional property coverage, the agency said.
"In the aftermath of Superstorm Sandy, the traditional avenues we use for insurance and reinsurance contracted dramatically, making it exceedingly difficult for the MTA to obtain insurance," said MTA Chairman and CEO Thomas F. Prendergast. "But as a result of this savvy and novel reinsurance arrangement, we are now in a stronger position should our area, God forbid, face another large-scale storm-surge event within the next three years."
The transaction provides protection in case the water level reaches designated heights in the New York City Metropolitan Region during any hurricane, tropical cyclone, or tropical storm through August 5, 2016, an event MTA described as "unlikely," though others both within and outside the rail industry don't automatically concur with such an evaluation.