The California Earthquake Authority’s (CEA) target for its latest catastrophe bond transaction, Ursa Re Ltd. (Series 2017-1), has been lifted significantly with the insurer now aiming for as much as $900 million of capital market backed reinsurance coverage from the deal.
According to sources the CEA’s latest cat bond is now set to be its largest ever deal, with the issuance likely to secure somewhere between $800 million and $900 million of fully collateralized reinsurance protection against California earthquake losses.
When the Ursa Re 2017-1 transaction was launched in April it had a target size of $500 million from the two classes of notes to be issued. Now, thanks to demand and the keen pricing available in the cat bond market, the target has jumped significantly.
We’re told that the pricing has not dropped, as has been seen with so many other recent cat bonds. In fact the Ursa Re 2017-1 cat bond is set to be priced at the upper end of the initial guidance on both tranches of notes.
The Class B tranche of notes, which launched at $200 million in size and have an initial expected loss of 1.11% were originally marketed with coupon price guidance in a range from 3% to 3.5%.
Now this Class B tranche is aiming for a size of $375 million to $425 million, we understand, while the price guidance has been fixed at the upper end of guidance at 3.5%.
Meanwhile, the Class E notes which were a $300 million layer at launch and have an initial expected loss of 3.33%, are now targeting $425 million to $475 million of coverage and the pricing is set to be fixed at 6%, which is the upper end of the initial 5.25% to 6% coupon guide range.
The fact this cat bond is likely to upsize so significantly, while pricing has moved to the upper end of guidance, is a clear demonstration of the CEA’s liking for the capital market backed protection it benefits from through catastrophe bonds.
It’s possible the CEA could have opted for a smaller deal at lower pricing, but clearly the initial pricing was still seen as attractive even at the upper end and ILS investor appetite to take more risk from the deal has helped to encourage this upsizing and what will be the CEA’s largest ever catastrophe bond issue.
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