Generali’s latest EUR 200 million catastrophe bond, the Lion II Re DAC transaction that looks to secure reinsurance protection against European perils including flood risks, has seen its suggested coupon fall below the initial launch guidance, as ILS investors demonstrate their comfort with the first Euro flood indemnity triggered bond.
The Lion II Re catastrophe bond will see a single EUR 200 million tranche of catastrophe bond notes issued, 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.
The deal remains at its launch size and we’re told that there is no appetite to upsize this catastrophe bond at this time.
Lion II Re will provide Generali with multi-year, fully-collateralized reinsurance protection from the capital markets, covering losses from European windstorm, European flooding and Italian earthquake events across a four-year term, on a per occurrence basis and with the trigger being indemnity.
At launch, the EUR 200 million of notes issued by Lion II Re which have an initial expected loss of 2.24% were marketed to ILS investors with coupon guidance in a range from 3.5% to 4%.
Now, sources said that the latest update reveals that the price guidance has fallen to below that initial range, with the cat bond deal being marketed with spread guidance of 3% to 3.5%.
Given where the expected loss sits that revised price guidance does seem aggressive, on a multiple basis. However, the risks are relatively remote and the contribution to expected loss from European flood risks is just 4%, for European windstorm 29.7% and Italian earthquake is the highest at 66.3%.
So the highest contributor is the risk with probably the lowest insurance penetration, meaning the severity of an event could actually have to be much more significant for triggers to be breached than with other perils.
At the same time, of course, reinsurance protection for Euro wind and Italian quake are particularly keenly priced right now, so any cat bond covering these risks would have to be too, which also explains the keen price guidance.
We understand that the Lion II Re cat bond will be priced this week, with completiomn anticipated for towards the end of the month.
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