Blue Halo Re Ltd. (Series 2016-2)

Blue Halo Re Ltd., a Bermuda domiciled special purpose insurer (SPI) will issue a single tranche of ILS notes that will be offered and sold to investors in order to collateralise an underlying reinsurance agreement between Blue Halo Re and Allianz Risk Transfer (Bermuda). This is the second issuance under the Blue Halo Re vehicle in about a month.

In this second Blue Halo Re issuance, the vehicle will seek to issue a single tranche of Series 2016-2 Class C cat bond notes which has a preliminary size of $100m.

The Blue Halo Re 2016-2 notes will provide Allianz Risk Transfer with a three-year source of fully collateralised retrocessional reinsurance protection against industry losses caused by U.S. named storms (so tropical storms, hurricanes and any storm that has been named by the NHC) across all U.S. storm exposed states, including Florida, the Gulf Coast and east coast, as well as U.S. earthquake risks in all states.

The Blue Halo Re 2016-2 cat bond notes will feature a state-weighted industry loss index trigger, with PCS providing the loss reporting and the reinsurance protection for this second Blue Halo Re is afforded on an annual aggregate basis.

That’s one key difference to the 2016-1 issue just over a month ago. Blue Halo Re 2016-1 was a term aggregate cat bond, so the aggregation of losses ran across the term of the deal, where as this new 2016-2 cat bond aggregates on an annual basis.

A number of cat bond investors we discussed the original Blue Halo Re cat bond with had queried the term aggregate nature and had expressed a preference for transactions that aggregate over annual risk periods instead of the deal-term.

We understand that these notes are less risky than the two tranches issued in June through the $185m Blue Halo Re Ltd. (Series 2016-1) transaction, with the attachment point of this Class C tranche of notes attaching at an industry loss index value of 1.7bn and covering losses up to an exhaustion point at 1.85bn, with a franchise deductible per qualifying loss of 25m.

That means the Blue Halo Re Series 2016-2 Class C notes are the least risky issued so far, but will continue the coverage further up the tower for Allianz Risk Transfer, sitting above the two tranches sold in the previous issuance.

The Series 2016-2 Class C notes have an attachment probability of 4.28% at the base case, or 4.82% at the WSST sensitivity case, and an expected loss of 3.99% base and 4.49% sensitivity.

The notes are being offered to investors with coupon price guidance of 8% to 8.75%, we understand, which would result in a base multiple of over 2x’s, even at the low-end of guidance and a sensitivity case multiple of 1.8x’s at the lower end of price guidance.

Unsurprisingly the multiples look like they will be higher than the previous two Series 2016-1 tranches offered, as is typical when the coupon comes down.

Update 1:

The Blue Halo Re 2016-2 Class C notes have grown by 125% to $225m in size, but at the same time the price guidance on the notes has dropped to below the mid-point of where the cat bond launched, a definite reflection of the opportunity sponsors may find in the cat bond market right now.

The Blue Halo Re Series 2016-2 Class C notes will be the least risky sponsored by Allianz ART so far, with an expected loss of 3.99% base and 4.49% sensitivity. The notes were launched with price guidance offered in a range from 8% to 8.75%.

Now, we understand that spread pricing for the Blue Halo Re 2016-2 notes dropped to 8.25% before orders closed for this cat bond deal. At that pricing level the notes will offer investors a multiple of 2.07 times the base expected loss, or 1.83 times the WSST sensitivity case EL.