Ursa Re Ltd. (Series 2018-1)

The California Earthquake Authority (CEA) returns with its latest catastrophe bond under the Ursa Re Ltd. program, which will be issuing one tranche of Series 2018-1 Class D notes, we understand, in order to collateralize reinsurance agreements that will provide the CEA with a three-year source of reinsurance from the capital markets, to protect it against certain losses due to earthquakes in California.

The notes will provide annual aggregate reinsurance protection to the CEA and feature an indemnity trigger, while the protection will run for a three-year term to September 2021.

Sources said that this new Ursa Re 2018-1 cat bond transaction sees the CEA looking to secure between $200 million and $250 million of reinsurance protection, which would replace the Ursa Re 2015-1 cat bond that is scheduled to mature in September.

Special purpose insurer (SPI) Ursa Re Ltd. is going to issue a single Class D tranche of up to $250 million of cat bond notes which will then be sold to investors and the proceeds used to collateralize underlying reinsurance agreements for the insurer.

The single tranche of Class D notes will provide annual aggregate reinsurance protection to sponsor the CEA and feature an indemnity trigger, while the protection will run to September 2021.

The Class D notes that are being marketed to catastrophe bond investors in a $200 million to $250 million Class D layer, will provide the CEA with protection for losses across a $500 million layer of risk from $2.521 billion of losses upwards, we understand.

The Class D notes have an initial attachment probability of 3.11% and an expected loss of 2.87% and are being offered to investors with price guidance in a range from 4.9% to 5.4%, we understand.

Given where the new Ursa Re 2018-1 cat bond will attach it does appear to be a rough replacement for the expiring 2015 transaction, albeit with a higher attachment probability given the continued growth in the CEA insurance portfolio.

In terms of pricing, this looks relatively aligned with other recent California earthquake cat bond deals if it prices near the mid-point of marketed spread guidance.

Update 1:

The pricing guidance was tightened for the notes in this issuance, to 5% to 5.25%, pointing towards settlement being somewhere near to, or just below, the original spread guidance. Meanwhile the size remained unchanged at a target of up to $250 million.

Update 2:

This Ursa Re 2018-1 cat bond eventually completed at the maximum target size of $250 million, while pricing was fixed at just below the initial mid-point at 5.1%.