Kizuna Re II Ltd. Japan quake cat bond launched for Tokio Marine

by Artemis on February 17, 2014

Japanese insurance group Tokio Marine & Nichido Fire is returning to the capital markets for reinsurance protection with the launch of Kizuna Re II Ltd. the latest catastrophe bond transaction to be sponsored by the firm.

Last year, Tokio Marine sponsored a privately placed catastrophe bond issuance, Kizuna Re Ltd., which saw it secure $160m of fully-collateralized reinsurance protection against Japanese typhoons from a group of insurance-linked securities (ILS) investors.

Kizuna Re II Ltd. sees the insurer again seeking to tap capital markets investors for a source of collateralized reinsurance capacity, but this time for the peril of Japanese earthquake risks and with a more broadly marketed 144A catastrophe bond issuance.

Kizuna Re II Ltd. is a Bermuda domiciled special purpose insurance vehicle, registered in January for the purpose of issuing series of catastrophe bond notes. In this issuance two tranches of Series 2014-1 notes are being marketed to investors, both being sold to collateralize reinsurance agreements to provide Tokio Marine with a source of Japanese earthquake protection.

Both of the tranches of notes will provide Tokio Marine with a source of indemnity based reinsurance protection, Artemis understands, with a Class A tranche of notes being marketed at a size of $160m and a Class B tranche at $40m.

Given the diversifying nature of a Japanese quake cat bond it would not be surprising to see this transaction grow in size, as investors are likely to show strong support for a true opportunity to add diversification to their cat bond portfolios.

The earthquake cover afforded to Tokio Marine by the Kizuna Re II cat bond will cover all Japanese territories, be on a per-occurrence basis and the indemnity trigger will be based on the insurers ultimate net losses from earthquake events. The Kizuna Re II cat bond will run for a four-year term.

The $160m tranche of Series 2014-1 Class A notes have an attachment probability of 0.41%, an expected loss of 0.21% and a probability of exhaustion of 0.06%. The attachment point for these notes is set at JPY 180 billion, which is around $1.77 billion and the exhaustion point is JPY 310 billion.

The $40m tranche of Series 2014-1 Class B notes have an attachment probability of 0.85%, an expected loss of 0.57% and a probability of exhaustion of 0.41%, making these notes the more risky of the two layers. The attachment point for these notes is set at JPY 120 billion, which is around $1.18 billion and the exhaustion point is JPY 180 billion.

The transaction features an initial short loss period, which we understand is being termed a stub period, running until the 31st March 2014, where the attachment point for the Class A notes is much higher, at JPY 310 billion. The Class B notes do not have this stub period.

The cat bond transaction features a flexible reset mechanism, allowing the deal to be reset within a range of expected loss, with the maximum expected loss that each class of notes can be reset to fixed at 0.3% for the Class A notes and 0.7% for Class B. This gives some flexibility in terms of where the cover sits within Tokio Marine’s reinsurance tower.

The Class A notes are being marketed to investors with a price guide of 2.25% to 2.5% and the Class B notes have price guidance of 2.75% to 3.25%.

That’s all the information we have for the moment on Tokio Marine & Nichido Fire Insurance’s Kizuna Re II Ltd. catastrophe bond. The transaction has been added to the Artemis Deal Directory and we will update you as further details become available.

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