Frontline Re cat bond pricing fixed towards middle of guidance

by Artemis on June 12, 2018

The debut catastrophe bond issuance from U.S. primary insurer Frontline Insurance continues to proceed to market, with the pricing now fixed for the two tranches of notes that make up the $350 million Frontline Re Ltd. (Series 2018-1) transaction.

Frontline Insurance entered the cat bond market for the first time last month with the launch of the Frontline Re 2018-1 deal, that sees the insurer looking to the capital markets for a $350 million source of fully-collateralized reinsurance protection.

The sponsor operates in a number of U.S. hurricane exposed states, including Florida, the Carolina’s and Alabama, so tapping ILS investors to assume a portion of its catastrophe risks will help Frontline diversify its reinsurance panel, using efficient and fully-collateralized coverage.

The Frontline Re cat bond issuance seeks $350 million of reinsurance coverage to protect Frontline Insurance and subsidiary First Protective against certain losses from U.S. named storms, with coverage initially for the states of Florida, North & South Carolina and Alabama, but able to be extended in future.

The Frontline Re cat bond will provide the sponsor with reinsurance on an indemnity and per-occurrence basis across a four-year term, effectively provide cascading coverage as the attachment point will drop down for second and subsequent events, where the total principal has not been eroded. Initially the notes will begin to attach at $315 million of losses, after Frontline’s retention.

At launch, the Frontline Re cat bond offering featured two tranches of notes, a $250 million Class A tranche, the less risky, and a $100 million Class B tranche which sits beneath the A notes.

The Frontline Re 2018-1 Class A notes, which have an initial expected loss of 4.04%, were launched with coupon guidance in a range from 6.75% to 7.25%. But this has now been fixed at the middle of that range, at 7% we’re told.

The Frontline Re 2018-1 Class B notes, with an initial expected loss of 8.13%, were offered to cat bond investors with coupon guidance in a range from 11.5% to 12.25%. This tranche now has its pricing fixed just below the mid-point, at 11.75% we understand.

The fact the riskier layer has seen its pricing settle lower down reflects the appetite of ILS investors to earn larger coupons where possible, as anything in double-digits is always in demand given they are not that frequently issued currently.

We’re told the Frontline Re cat bond issuance will be completed before the end of this month, so adding to the already bumper $8.24 billion of first-half 2018 new issuance.

You can read all about this $350 million Frontline Re Ltd. (Series 2018-1) catastrophe bond transaction and every other cat bond since the market began in the Artemis Deal Directory.

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