East Lane Re V Ltd. (Series 2012-1)

East Lane Re V Ltd. will be Chubb Group’s fifth cat bond in the East Lane series of deals.

East Lane Re V will provide $125m (or more if it upsizes) of indemnity trigger based, fully collateralized risk transfer via a reinsurance agreement on a per-occurrence basis over a four-year risk period against certain U.S. hurricanes and severe thunderstorms. The duration of East Lane Re V is four years and so will provide protection until March 2016.

East Lane Re V Ltd. is a newly formed Cayman Islands domiciled SPV established to issue cat bond notes designed to protect certain Chubb subsidiaries against U.S. hurricanes and severe thunderstorms in certain U.S. States. East Lane Re V has been set up as a shelf program which would allow Chubb to issue future series of notes through the entity.

Cover will be afforded on a per-occurrence basis and the deal utilises an indemnity trigger.

The deal will involve two classes of notes which will both be exposed to U.S. hurricanes and severe thunderstorms in the States of Alabama, Florida, North & South Carolina, Louisiana, Mississippi and Texas. A $75m Class A tranche of notes and a $50m Class B tranche are currently being marketed.

Covered losses are for personal lines property exposures within Chubb’s subsidiaries books of business only and are based on Chubb’s ultimate net losses.

The Class A notes will provide cover for a percentage of losses above an attachment point of $1 billion up to an exhaustion point of $1.15 billion. The Class B notes attach at $850m up to $950m. The Class A notes have a probability of attachment of 1.59%, annual expected loss of 1.4% and a probability of exhaustion of 1.23%. Class B has a probability of attachment of 2.11%, annual expected loss of 1.91% and a probability of exhaustion of 1.76%. There will be three annual resets during the four-year deal term.

Based on risk analysis only one historical event would have triggered this deal, an unamed 1928 hurricane would have caused a 100% loss to the Class B notes and a 68% loss to the Class A. Standard & Poor’s note that the contribution to expected losses by peril is split as hurricane 88%/87% and severe thunderstorm just 12%/13% for each Class of notes. Also of interest is the fact that Florida will contribute almost 70% of the expected loss by state.

The collateral proceeds from the sale of the notes will be deposited into separate reinsurance trust accounts for each class of notes and will be invested in highly rated Treasury money market funds.

The Class A notes are expected to price somewhere in the range of 8%-9% above Treasury money market funds. The Class B notes are expect to price between 10%-11% above TMMF.

Target size is $125m but this deal could upsize before closing.

Update:

East Lane Re V Ltd. closed at $150m. The $75m of Class A notes didn’t upsize and priced at the top end of the range at 9% above TMMF. The riskier Class B tranche of notes, which have a lower attachment point, upsized to $75m and priced slightly under the top of the guidance range at 10.75% above TMMF.