Generali seeks EUR200m Lion II Re cat bond, includes Euro flood risk

by Artemis on June 9, 2017

Another new catastrophe bond has come to market, this time with the third visit to the cat bond market in recent years from Italian and global insurance giant Assicurazioni Generali S.p.A. with a EUR 200 million Lion II Re DAC transaction, as it seeks reinsurance protection against European perils including flood risks.

This is the first European multi-peril catastrophe bond since about the year 2000, we believe, demonstrating just how much of a rarity a cat bond exposed to multiple natural perils in Europe can be.

This Lion II Re cat bond is even rarer, as it is the first catastrophe bond we’ve seen that will provide reinsurance against flooding losses in European countries.

Lion II Re is an Irish designated activity company, established to issue a single EUR 200 million tranche of catastrophe bond notes that will be sold to investors in order to collateralize a reinsurance agreement between Lion II Re and the sponsor Assicurazioni Generali S.p.A., we understand from sources.

We’re told that the target size of EUR 200 million is the limit and there is no appetite to upsize this catastrophe bond.

The reinsurance agreements between the sponsor and Lion II Re will provide Generali with multi-year, fully-collateralized reinsurance protection from the capital markets against losses from European windstorm, European flooding and Italian earthquake events.

Coverage will be across a four-year term, we’re told, on a per occurrence basis and with the trigger being indemnity.

European windstorm coverage is for all of the countries exposed to that peril, while European flood coverage will be a subset, including the UK, but not Northern Ireland, Germany, Austria, Hungary, Czech Republic, Slovakia, Poland and Switzerland. Italian earthquake coverage is for the entire country.

The Lion II Re catastrophe bond notes will attach at EUR 800 million of European windstorm losses, EUR 1.1 billion of European flood losses, or EUR 600 million of Italian earthquake losses suffered by Generali. We understand that windstorm and earthquake coverage is for the full EUR 200 million, but flood coverage is only a EUR 100 million layer of reinsurance protection.

That means the EUR 200 million of notes issued by Lion II Re will have an initial attachment probability of 3.21% and an expected loss of 2.24%.

In terms of pricing, we’re told that the notes are going to be offered to investors with suggested coupon guidance in a range from 3.5% to 4%.

It’s an interesting transaction and good to see a major sponsor looking for reinsurance coverage against losses from multiple natural perils in the European region, which as we said has been a real rarity in the catastrophe bond market.

Particularly encouraging though is the inclusion of European flood risk on an indemnity basis, a peril which has rarely been included in any catastrophe bonds for any region. If this deal is a success it could encourage other large sponsors to look to the capital markets and ILS investors for flood reinsurance and risk transfer support.

You can read all about the Lion II Re DAC catastrophe bond transaction in the Artemis Deal Directory and we’ll keep you updated as and when more information emerges.

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