The Kilimanjaro Re Ltd. (Series 2015-1) catastrophe bond which is currently being marketed on behalf of reinsurance firm Everest Re looks set to more than double in size, from the $300 million it launched at, to $625 million by the close.
Everest Re returned to the catastrophe bond market almost a fortnight ago seeking a new capital market backed source of retrocessional reinsurance cover from its latest, and third, Kilimanjaro Re cat bond issuance.
When the deal launched Everest Re was looking for at least $300 million of retrocessional reinsurance protection against losses from U.S. named storm and earthquake risks across the covered area of all U.S. states, Canada, the District of Columbia and Puerto Rico.
The deal is split into two tranches, both providing per-occurrence reinsurance protection to Everest Re over a four-year term and both using a location-weighted industry loss trigger, based on data reported by Property Claim Services (PCS).
Kilimanjaro Re is issuing the two tranches of Series 2015-1 cat bond notes. At launch a Class D tranche of notes had a preliminary size of $125 million, while a Class E tranche had a preliminary size of $175 million.
Thanks to demand from ILS investors the Class D tranche, which is the riskier of the two, has grown to $300 million in size, while the Class E tranche has upsized to $325 million. Full details of each tranche, including the attachment points, expected loss, industry loss index trigger points and values etc, can be found in our Deal Directory entry for Kilimanjaro Re Ltd. (Series 2015-1).
As well as upsizing to $625 million, the price guidance for both tranches of Kilimanjaro Re 2015-1 notes has been fixed.
When the deal launched the Class D tranche had spread guidance of 9% to 9.75%, making it one of the highest coupon cat bond offerings for quite a while. We understand that the guidance has now been fixed at 9.25%, so towards the lower end and just below the mid-point of guidance.
Conversely, the Class E tranche which is now the largest, and lower risk, looks set to price at the mid-point. This tranche launched with price guidance of 6.5% to 7%, but we understand that has been fixed at 6.75%.
At 9.25% the Class D tranche of notes would pay ILS investors a multiple of 1.96 times the expected loss of 4.71%. The Class E tranche, at 6.75%, would pay investors a multiple of 2.5 times the expected loss of 2.7%.
Across the transaction and bearing in mind that the coupon available from the Class D tranche is higher than the majority of recent cat bonds, those seem reasonable multiples and aligned with recent market experience.
So once the Kilimanjaro Re 2015-1 cat bond has completed at a size of $625 million, reinsurer Everest Re will have a huge $1.575 billion of capital market retrocessional reinsurance from this new deal as well as the $450m Kilimanjaro Re Ltd. (Series 2014-1) issued in April 2014 and the $500m Kilimanjaro Re Ltd. (Series 2014-2) cat bond issued a year ago in November 2014.
This 2015-1 catastrophe bond is also Everest Re’s largest to date, demonstrating its continued use of third-party capital and the ILS market as part of its portfolio hedging strategy. Once completed Everest Re could move into second place in our leaderboard of cat bond sponsors by risk capital outstanding, according to Artemis’ data.
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