Akibare Re Ltd. (Series 2018-1)

This is the fourth Akibare Re named catastrophe bond transaction but this time the beneficiaries are two MS&AD Insurance Group companies, Mitsui Sumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co., Ltd., with one tranche of notes set to provide collateralized reinsurance protection to each of the two ceding insurers.

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.

Update 1:

We’re told that thanks to strong investor demand the transaction is now targeting up to $320 million of coverage for the insurers, while at the same time the price guidance has fallen for both of the tranches of notes being issued.

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

This tranche, with an expected loss of 0.73%, is now targeting between $200 million and $220 million of coverage for Mitsui Sumitomo and at the same time as upsizing the initial price guidance of 2% to 2.5% has been slashed to 1.9% to 2%, we understand.

The second tranche began as a $75 million Class B layer, designed to benefit only Aioi Nissay Dowa Insurance Co., Ltd. with reinsurance protection against losses from just typhoons and floods in Japan.

This tranche, which has an expected loss of 0.99%, is now targeting $100 million of coverage for Aioi Nissay Dowa Insurance and the initial coupon price guidance of 2% to 2.5% has again been slashed down to 1.9% to 2%.

So both of the tranches of cat bond notes being issued by Akibare Re in this Series 2018-1 deal have seen their size increase while the pricing guidance has fallen to the bottom-end or below, thanks to strong investor demand.

Update 2:

We understand from sources that the upper end of the targeted size for the catastrophe bond was secured, at $320 million.

The transaction now consists of a $220 million Series 2018-1 Class A tranche of notes that will benefit only Mitsui Sumitomo Insurance Co. Ltd. with reinsurance protection against losses from typhoons, floods and earthquake related fire events across Japan, and a $100 million Class B layer, designed to benefit only Aioi Nissay Dowa Insurance Co., Ltd. with reinsurance protection against losses from just typhoons and floods in Japan.

The $220 million Class A tranche of notes, which have an expected loss of 0.73%, launched with initial price guidance of 2% to 2.5%, which was subsequently slashed to 1.9% to 2% and has now been fixed at the lowest end of the reduced guidance at 1.9%.

The $100 million Class B tranche, which has an expected loss of 0.99%, had initial price guidance of 2% to 2.5%, which was slashed down to 1.9% to 2% and has now been fixed at the bottom end of the range at 1.9%.