Tokio Marine & Nichido Fire’s latest catastrophe bond transaction, Kizuna Re II Ltd. has been upsized to $245m before finally pricing at the lowest end of the already reduced range.
Sources told Artemis that Tokio Marine has taken advantage of attractive insurance linked securities market issuance conditions to grow the size of its latest catastrophe bond. Investor demand remains strong, with this deal oversubscribed as every transaction has been of late.
The Kizuna Re II Ltd. catastrophe bond sees Tokio Marine looking to secure support from capital markets investors for a source of fully-collateralized reinsurance protection against Japanese earthquake risks over a four-year term. The Kizuna Re II cat bond protection is on an indemnity trigger and per-occurrence basis.
The Kizuna Re II cat bond launched with two tranches, the first a $160m tranche of Series 2014-1 Class A notes, which are the lower risk of the two, and a $40m tranche of Series 2014-1 Class B notes which have a higher attachment probability.
Artemis understand that the Class A tranche has now been increased in size to $200m, while the Class B tranche has been upsized by just $5m to $45m in size. That’s an increase in deal size of almost 23%.
At the same time the pricing has now settled at the lowest end of the already reduced pricing range. Last week the pricing guidance was reduced on both tranches of notes and investor demand has now helped Tokio Marine to secure its reinsurance protection at a very low coupon indeed.
The Class A tranche, now $200m in size, launched with price guidance of 2.25% to 2.5%. The price guidance was reduced to the bottom of the range, with the Class A tranche offered with a coupon of 2.25% last week. The final pricing has settled at that low end of a 2.25% interest coupon to be paid to investors, possibly the lowest spread for Japanese earthquake risk in the cat bond markets history.
Meanwhile the Class B tranche of notes, now $45m in size, which launched with a price guide range of 2.75% to 3.25% which was then lowered to below the bottom end of that range, with the notes offered with a coupon range of 2.5% to 2.75% las week. These notes have now priced at the low end of the reduced range with an interest coupon of 2.5%, again very low for Japanese quake risk.
The pricing is low but these are reasonably remote layers of risk from Tokio Marine’s reinsurance tower, so with cat bond investor appetite so high it is no surprise that the spreads have been pushed down to historic lows for the peril of Japanese earthquake.
The Class A tranche has seen pricing drop by just over 5% while the Class B riskier tranche of notes have seen a much larger drop in pricing of nearly 17%, a significant reduction in cost for the protection for Tokio Marine.
Tokio Marine will no doubt be delighted with the marketing of its Kizuna Re II catastrophe bond, with the protection increased for a reduced and very low coupon rate. The transaction is scheduled to complete this week.
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