Alamo Re Ltd. (Series 2017-1)

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Alamo Re Ltd. (Series 2017-1) - At a glance:

  • Issuer / SPV: Alamo Re Ltd. (Series 2017-1)
  • Cedent / Sponsor: Texas Windstorm Insurance Association (TWIA) / Hannover Rück SE
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / Perils covered: Texas named storms and severe thunderstorms
  • Size: $400m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2017

Alamo Re Ltd. (Series 2017-1) - Full details

This is the third Alamo Re catastrophe bond to benefit the Texas Windstorm Insurance Association (TWIA) with reinsurance protection from the capital markets. It's the first cat bond where TWIA has added Texas severe thunderstorm protection to the covered perils, alongside Texas named storms.

Again, German reinsurer Hannover Re is helping TWIA to bring this deal to market, acting as the ceding reinsurer in the transaction. TWIA will enter into a reinsurance agreement with Hannover Rück SE which will then enter into a retrocession agreement with Alamo Re Ltd. to effect the 2017-1 cat bond transaction.

Bermuda domiciled SPI Alamo Re Ltd. will look to issue a single tranche of Series 2017-1 Class A notes, currently targeting a $250 million issuance, which will be sold to ILS and cat bond investors in order to collateralize a retrocessional reinsurance agreement between the issuer and Hannover Rück SE. Hannover Rück SE will in turn enter into a reinsurance agreement with TWIA to provide the coverage.

The $250 million of notes issued by Alamo Re in this 2017-1 issuance will provide TWIA with a three-year source of fully-collateralized reinsurance protection against losses from named storms and severe thunderstorms in the state of Texas. The cat bond notes will feature an indemnity trigger and the reinsurance coverage will be on an annual aggregate basis.

In order to become a qualifying event, under the terms of the Alamo Re 2017-1 cat bond deal, named storm or severe thunderstorm events must cause TWIA a loss of above $50 million in the covered area.

We understand from sources that losses will attach to the notes only above an attachment point of $2.8 billion of losses, and cover up to an exhaustion point of $4.2 billion. In this layer the Alamo Re 2017-1 cat bond will sit alongside traditional reinsurance coverage, so should pricing be attractive there is plenty of room for TWIA to elect to upsize this deal.

The initial attachment probability is 2.28% and the expected loss is 1.71%. We’re told the notes are being offered to investors with coupon price guidance of 3.9% to 4.4%.

The Alamo Re 2017-1 cat bond will sit directly beneath the $700m of Alamo Re 2015-1 notes in TWIA’s reinsurance tower.

While TWIA has opted to add severe thunderstorm risks into its 2017 cat bond, we understand that they make up a minimal proportion of the expected loss and that named storm risks remain the main exposure ILS investors will be assuming with this transaction.

Update 1:

We now understand from sources that the target size for this issuance has been increased, with TWIA now looking to secure somewhere from $350 million to as much as $400 million of reinsurance protection through the issuance of this Alamo Re 2017-1 cat bond.

At the same time as the target size has been lifted, the price guidance on the notes has dropped, we’re told.

We understand that this pricing has been lowered and narrowed, with the Alamo Re 2017-1 cat bond notes now offered with coupon guidance of 3.75% to 3.9%, so below the initially marketed range.

Update 2:

TWIA's latest cat bond achieved the upsized $400 million target, representing growth of 60% on the initial issuance target size.

The transaction has been priced, with a coupon of 3.75% set, so at the bottom end of the already reduced pricing range reflecting a good reduction in costs for TWIA in securing this reinsurance protection.




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