A new catastrophe bond has launched for the California Earthquake Authority (CEA) and it’s one of the largest deals at launch from this regular sponsor of insurance-linked securities (ILS), a $500 million Ursa Re Ltd. (Series 2017-1) transaction.
It’s the California Earthquake Authority’s first public catastrophe bond issue since last November, when it sponsored a $500 million Ursa Re 2016-1 deal. That cat bond was the largest directly sponsored by the CEA, but it began life as just a $300 million cat bond.
With this new 2017-1 Ursa Re deal starting at $500 million, it is the largest cat bond launch yet from the CEA and could easily become its largest deal to-date, especially when you consider that ILS investor appetite for new cat bond issues remains very high.
Ursa Re Ltd. will be issuing two tranches of Series 2017-1 notes, we understand, in order to collateralize reinsurance agreements that will provide the CEA with a three-year source of reinsurance from the capital markets, to protect it against losses due to earthquakes in California.
The notes will provide annual aggregate reinsurance protection to the sponsor and feature an indemnity trigger, while the protection will run for a three-year term.
A $200 million Class B tranche of notes will provide the CEA with protection from an attachment point of $5.1 billion and cover a $500 million layer of risk, resulting in an initial attachment probability of 1.19% and an expected loss of 1.11%. The Class B, lower risk tranche of notes, are being offered to investors with coupon price guidance in a range from 3% to 3.5%.
A $300 million Class E tranche is riskier, attaching at $1.7 billion, covering a $500 million layer and having an initial attachment probability of 3.72% and expected loss of 3.33%. The Class E tranche is offered with price guidance of 5.25% to 6%. The pricing multiple on this tranche will make this a very efficient layer of coverage for the CEA, if pricing settles within guidance.
The CEA has been a long-time sponsor of catastrophe bonds and has used the capital markets a portion for its reinsurance coverage on a collateralized basis for well over a decade, making it a trusted sponsor and partner of the largest ILS investment funds.
This latest transaction, which is the CEA’s fourth in the Ursa Re series of catastrophe bonds, is expected to close in May.
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