Pricing drops on higher risk Casablanca Re cat bond notes for Avatar

by Artemis on May 24, 2017

Price guidance has been reduced on the two higher risk tranches of notes to be issued in Floridian primary insurer Avatar Property and Casualty Insurance Company’s first catastrophe bond issuance, the $100 million Casablanca Re Ltd. (Series 2017-1) transaction.

Avatar, an expansive property insurer formed to serve the Florida market in 2008, launched its first cat bond almost two weeks ago, seeking a fully-collateralized source of protection against losses from named storms striking the state of Florida over a three-year term, with the protection on a per occurrence basis and each tranche having an indemnity trigger linked to the insurer’s losses.

Casablanca Re Ltd. will issue three tranches of notes, all linked to Florida named storm risks, with differing risk levels per tranche. According to sources it is the two riskier tranches that look set to achieve more attractive pricing for Avatar, while the lowest risk tranche pricing has narrowed around the middle of guidance.

The Casablanca Re 2017-1 cat bond launched with a $55.15 million tranche of Class A notes, with an expected loss of 0.8% and that were offered to cat bond investors with coupon price guidance of 3.25% to 4%. We’re told that the price guidance has been narrowed at 3.5% to 3.75%, so in the middle of the marketed range.

The middle risk $21.7 million Class B tranche of notes, with an expected loss of 1.77% launched with price guidance in a range from 5% to 6%. The pricing on this tranche has fallen to 5% to 5.5%, so looking set for pricing nearer the lower end of guidance.

Finally, the riskiest $23.15 million Class C tranche, with an expected loss of 9.93%, were offered to investors with price guidance of 16% to 18%. The guidance on this tranche has been narrowed and reduced towards the bottom end, at 16% to 17% we’re told.

So the indication from this pricing is that investors have shown stronger appetite for the higher risk, higher return tranches of notes from Avatar’s first catastrophe bond transaction.

Given the dynamics in the cat bond market right now this is no surprise, as investors seek higher return opportunities to boost overall portfolio performance.

For Avatar it means the riskier layers of its reinsurance program that the Casablanca Re cat bond notes sit in may prove particularly cost-effective.

We will continue to update you as the Casablanca Re Ltd. (Series 2017-1) catastrophe bond comes to market and you can read about this and every other cat bond in the Artemis Deal Directory.

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