Akibare Re 2018 cat bond seeks $225m coverage for MS&AD insurers

by Artemis on March 1, 2018

A new catastrophe bond transaction has been launched to benefit two companies of Japanese insurance group MS&AD Insurance Group Holdings, with a $225 million Akibare Re Ltd. (Series 2018-1) transaction that seeks to secure the sponsors a source of collateralized multi-peril reinsurance cover for three perils.

The previous Akibare Re transactions have solely benefited Japanese primary insurer Mitsui Sumitomo Insurance Co. Ltd., but this latest cat bond, the fourth with the Akibare name, sees fellow MS&AD stable insurer Aioi Nissay Dowa Insurance Co., Ltd. also a ceding company and beneficiary to the reinsurance protection this cat bond will provide, sources said.

For this latest catastrophe bond issuance, special purpose insurer Akibare Re Ltd. will seek to issue two tranches of Series 2018-1 notes, which will be sold to qualified investors to collateralize underlying catastrophe reinsurance agreements with the two ceding insurers.

The notes will provide both Mitsui Sumitomo and Aioi Nissay Dowa with fully-collateralized reinsurance protection on a per-occurrence and indemnity trigger basis across four-year terms, with one tranche of notes dedicated to each ceding company.

The issuance consists of a currently $150 million sized tranche of Series 2018-1 Class A notes, which will benefit only Mitsui Sumitomo Insurance Co. Ltd. with reinsurance protection against losses from typhoons, floods and earthquake related fire events across Japan.

Earthquake related fire risk is a new peril that, while included in many Japan quake cat bonds, has not been singled out on its own before. This tranche of notes does not cover earthquake shake damage, just the damage caused by fires following a quake event which is a major risk for many Japanese property insurers.

The second tranche of Series 2018-1 Class B notes, which is current $75 million in size, will benefit only Aioi Nissay Dowa Insurance Co., Ltd. with reinsurance protection against losses from just typhoons and floods in Japan.

The $150 million Class A tranche of Akibare Re 2018-1 notes attach at JPY 360 billion for typhoon and flood events, but just JPY 10 billion for earthquake fire events. That gives these notes an initial attachment probability of 0.9%, an expected loss of 0.73% and as a result they are being offered to investors with a 2% to 2.5% coupon pricing range, we understand.

The $75 million Class B tranche of Akibare Re 2018-1 notes attach at JPY 280 billion for the covered perils of typhoon and flooding, giving the notes an initial attachment probability of 1.09%, an expected loss of 0.99% and a marketed coupon price in a range from 2% to 2.5%.

The price marks suggest multiples aligned with or perhaps a little lower than the last Akibare Re cat bond, where price multiples were about 2.1 times the expected loss.

Given there are two sponsoring companies for this fourth Akibare catastrophe bond there is a chance the deal may upsize more significantly than previous transactions, given the potential of a greater need for coverage from the two sponsoring insurers.

We’re told this new Akibare Re 2018 cat bond will be issued in March, so falling into first-quarter 2018 cat bond issuance which already stands at $2.38 billion, according to Artemis data.

We’ll keep you updated as the Akibare Re Ltd. (Series 2018-1) cat bond proceeds to market and you can read all about this and every other cat bond transaction in the Artemis Deal Directory.

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