The price guidance has been lowered for French reinsurance firm SCOR’s latest catastrophe bond the $300 million Atlas Capital UK 2018 PLC (Series 2018 ISPV 1), as demand from ILS investors looks set to result in another transaction pricing at the low-end of initial guidance for this first cat bond under the new UK regulatory regime.
SCOR is first sponsor to use the recently enacted UK ILS regulatory and tax regime and as you’d expect given the recent pricing seen on transactions, the reinsurer is set to benefit from keenly priced retrocession with the transaction.
The Atlas Capital UK 2018 catastrophe bond will provide SCOR with $300 million of multi-peril retrocessional reinsurance protection across a four-year term, covering the firm against the impacts of losses from U.S. named storm, U.S. and Canada earthquake and European windstorm risks.
The coverage is effected through SCOR Global P&C SE as the ceding company, but applies across SCOR’s portfolio companies. SCOR registered a new Atlas Capital UK 2018 PLC insurance special purpose vehicle which will act as the transformer, entering into retrocessional reinsurance agreements with SCOR and issuing notes which will be sold to investors to fully collateralise them.
The $300 million of Series 2018 ISPV 1 notes issued by Atlas Capital UK 2018 will provide SCOR with coverage on an annual aggregate basis, using regionally weighted industry loss triggers that take into account a per-event deductible for each of the covered perils.
The $300 million of Series 2018 ISPV 1 notes that Atlas Capital UK 2018 PLC is issuing have an initial attachment probability of 3.98% and were marketed to ILS investors with spread guidance in a range from 6% to 6.5%. But now the price guidance has dropped and been fixed at the lowest end of that range, at 6% we understand.
At a 6% coupon the notes will offer investors a multiple of roughly 1.5 times the initial expected loss, which is much lower than SCOR’s previous cat bond, the $300 million Atlas IX Capital DAC (Series 2016-1) which had an initial expected loss of 3% and priced at 7.5%, demonstrating how pricing of new cat bond issues has moved in recent years.
One interesting point to note however, is that while SCOR has been growing its book in U.S. property risks over recent renewals, suggesting the firm has greater exposure to some of the covered perils than it had back in 2016, the fact this is an industry loss cat bond means investors aren’t exposed to SCOR’s growth in that market, only to the industry-wide exposure to major catastrophe events.
We’re told this cat bond will be priced today and it’s expected to be at this size and coupon level, sources said. The transaction closes at the end of the month.
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