Kilimanjaro Re cat bond prices at lowest end of reduced guidance

by Artemis on April 24, 2014

Reinsurance firm Everest Re’s first catastrophe bond issue, the now $450m after upsizing Kilimanjaro Re Ltd. (Series 2014-1), has priced at the lowest end of a reduced price guidance range, Artemis understands.

Everest Re must be delighted with the success of its first trip to the catastrophe bond market as a sponsor. Its Kilimanjaro Re cat bond grew in size by 80% while marketing from the $250m it launched at to offer $450m of notes through its two tranches. At the same time as the upsizing the price guidance range was reduced to below the launch range.

The Kilimanjaro Re cat bond will provide Everest Re with per-occurrence and annual aggregate U.S. named storm protection as well as aggregate U.S. earthquake protection as well, using a PCS weighted industry loss trigger. The deal is split into two tranches, a $250m Class A tranche of notes to provide per-occurrence coverage for U.S. named storms and a $200m Class B tranche providing annual aggregate protection for U.S. named storms and aggregate earthquake protection.

The pricing guidance for the Class A per-occurrence notes started at 5.25% to 5.75%, but was subsequently lowered down to a range of 4.75% to 5.25%, so below the original range. At final pricing Artemis understands that these $250m of Class A notes will pay investors a coupon of 4.75%, right at the lowest end of the reduced range. That’s a drop in pricing of around 16% from the mid-point of the launch guidance.

The Class B annual aggregate notes were initially offered with an interest spread coupon of 5% to 5.5%, which subsequently dropped to 4.5% to 5%. The pricing on this $200m tranche of notes finished again at the lowest end of the reduced range, offering investors a coupon of 4.5%. That’s a price reduction of almost 17% from the mid-point of the launch guidance range.

We understand the Everest Re’s Kilimanjaro Re cat bond will settle and be issued today. The reinsurer, whose CEO Dominic Addesso said in its latest quarterly results that it increasingly uses alternative reinsurance capacity both offensively and defensively to optimise its returns, will be pleased with the pricing and terms it secured on this cat bond issuance.

As the alternative reinsurance capital and ILS trend continues to play-out it will be interesting to see whether new sponsors such as Everest Re seek to grow their use of cat bonds while pricing remains so attractive. We could see further opportunistic buys from large reinsurers who find that they can secure very attractive retrocessional cover at very attractive pricing.

You can find full details on the Kilimanjaro Re Ltd. (Series 2014-1) deal and every other catastrophe bond in the Artemis Deal Directory.

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