February 18th, 2016

Catastrophe Bond: Fourth Quarter Primary Issuance, Part II

Posted at 1:00 AM ET

Everest Re successfully issued two tranches of Kilimanjaro Re Ltd. Series 2015-1 Notes representing an aggregate principal amount of USD 625 million. The catastrophe bonds provide Everest Re Group, Ltd. with protection against U.S. earthquake and named storm events on a per-occurrence, PCS-reported industry insured index-derived basis. The Class D Notes carry a one-year expected loss of 5.25 percent, based on AIR’s WSST catalog and investors receive an initial interest spread of 9.25 percent per annum (initial price guidance was quoted as 9.00 percent to 9.75 percent). The Class E Notes carry a one-year expected loss of 3.00 percent, based on AIR’s WSST catalog, with investors receiving an initial interest spread of 6.75 percent per annum (initial price guidance was quoted as 6.50 percent to 7.00 percent). The Series 2015-1 Notes represent the third time Everest Re has accessed the capital markets since 2014 with USD 1.575 billion aggregate limit currently outstanding.

USAA has accessed over USD 6.0 billion of cumulative limit from insurance-linked securities (ILS) investors since 1997 through 25 separate catastrophe bond offerings. The latest USAA-sponsored catastrophe bond issuance (Series 2015-2 Class 3 Notes) completed in December 2015 provides USD 125 million of per occurrence, indemnity triggered multi-peril protection. The Series 2015-2 Notes carry a one-year expected loss of 3.26 percent as modeled by AIR’s WSST catalog, with investors initially receiving a risk interest spread of 7.25 percent per annum (initial price guidance was quoted as 7.00 percent to 7.75 percent).

Zenkyoren obtained USD 300 million of protection against Japanese earthquake via the existing Nakama Re Ltd. vehicle. Nakama Re Ltd. issued USD 100 million of Class 1 Notes that trigger on an indemnity, per occurrence basis, and issued USD 200 million of Class 2 Notes that trigger on an indemnity, three year aggregate basis. The Class 1 Notes provide investors with an initial risk interest spread of 2.875 percent per annum (initial price guidance was quoted as 2.75 percent to 2.875 percent) corresponding to a one year expected loss of 1.16 percent. The Class 2 Notes provide investors with an initial interest spread of 3.25 percent per annum (initial price guidance was quoted as 2.875 percent to 3.25 percent) corresponding to a three year expected loss of 2.59 percent (or 0.86 percent on an annualized basis). Zenkyoren has now sourced USD 2.345 billion of cumulative limit from ILS investors since 2003 through seven separate catastrophe bond offerings.

Munich Re also obtained incremental protection on a per occurrence basis against U.S. Hurricane and Australia Tropical Cyclone via the Queen Street XI Re DAC vehicle. Queen Street XI Re issued USD 100 million of Series 2015-1 Notes that triggers with the use of a PCS-reported industry insured index-derived basis for U.S. Hurricanes and modeled losses for Australia Tropical Cyclone. Munich Re has raised USD 1.1 billion of protection via the Queen Street vehicles since 2008. The Series 2015-1 Notes provide investors with an initial interest spread of 6.15 percent per annum (initial price guidance was quoted as 5.75 percent to 6.15 percent) corresponding to a one-year expected loss of 2.86 percent based on AIR’s WSST catalog.

The most significant transaction of the fourth quarter was the successful placement of USD 275 million of Principal At-Risk Variable Rate Notes issued from the newly formed PennUnion Re Ltd. special purpose reinsurer in order to provide reinsurance protection to corporate sponsor Amtrak’s captive, Passenger Railroad Insurance, Ltd. The Series 2015-1 Notes provide per occurrence, parametric triggered protection from storm surge and wind resulting from Named Storms as well as earthquakes affecting the Northeast region of the United States for a period of approximately 3.17 years. The transaction is triggered based on key intensity measurements of the physical parameters for each respective peril captured at specified measurement locations. Depending upon the peril, the measurements are taken from both inland and offshore locations ranging from the Washington, D.C. to Providence, Rhode Island regions. Storm surge water height measurements are captured at seven tidal gauge stations in the Long Island Sound, East River, Lower New York Bay and Delaware River. Wind measurements are captured and interpolated for 60 ZIP codes along Amtrak’s Northeast Corridor railways from Washington, D.C. to near Providence. Earthquake intensity is interpolated to 21 ZIP codes within the states of Delaware, New Jersey, New York, Pennsylvania and Rhode Island. The underlying exposure was modeled by RMS and the Series 2015-1 Notes carry a one-year expected loss of 1.97 percent, corresponding to an interest spread of 4.50 percent per annum (which was the low end of an initial price guidance quoted as 4.50 percent to 5.00 percent).

Link to Part I>>

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*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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