The latest catastrophe bond from Argo Group, Loma Reinsurance (Bermuda) Ltd. (Series 2013-1), has increased in size by 65% to $165m and price guidance has dropped to below the initial range on all three tranches of notes being offered.
Insurance and reinsurance company Argo Group is seeking a four-year source of reinsurance and retrocessional protection from capital market investors against tropical cyclones, U.S. earthquakes and U.S. severe thunderstorms on an annual aggregate basis with this cat bond, which launched just over a week ago.
The Loma Reinsurance (Bermuda) Ltd. cat bond will provide Argo Group with protection for subsidiaries Argonaut Insurance, Argo Re and Lloyd’s Syndicate 1200. The deal features a unique trigger, using an indemnity trigger for Argo’s insurance businesses that are covered and a PCS industry loss trigger for the retrocessional protection for Argo Re.
Loma Reinsurance (Bermuda) is offering three tranches of notes to investors, all with differing levels of risk and return which will be attractive to investors. Overall this cat bond transaction has grown in size by 65% while marketing, from a target issuance size of $100m when the deal launched to now offer $165m of notes.
The three tranches of notes being offered by Loma Re (Bermuda) have all seen pricing decline to below the lower end of the originally marketed ranges. The individual tranches of notes were not sized when the deal launched.
The Class A tranche is currently $25m in size. It launched with price guidance of 10.5% to 11.5%, but this has declined to a range of 9.75% to 10.5%.
The Class B tranche is $75m in size. This tranche launched with price guidance of 12.75% to 13.75%, but this range has dropped to 12% to 12.75%.
The Class C tranche of notes is $65m in size. This tranche launched with price guidance of 17.5% but is now being offered with guidance of 17% to 17.5%.
It’s interesting that the lower risk tranche of notes, which still offers investors an attractive coupon of around 10% has not grown particularly large. It’s possible that investors have found the Class B and C tranches, which are higher risk, more attractive as an investment opportunity.
It will be interesting to see whether this cat bond increases in size any further before it completes, as it offers a much higher coupon opportunity to investors than any other cat bonds recently offered have provided.
The Loma Reinsurance (Bermuda) Ltd. catastrophe bond is expected to complete just before the end of the year, we understand. We will keep you updated as the cat bond comes to market.
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