Atlas IX Capital Limited (Series 2015-1)

This 2015 deal sees Atlas IX Capital proposing to issue at least $150m of notes linked to SCOR Global P&C SE’s catastrophe exposures in the U.S. and Canada for named storm and earthquake protection.

As we understand it, Atlas IX Capital will issue a single tranche of Series 2015-1 Class A notes to source retrocessional reinsurance protection for the sponsor, SCOR Global P&C SE’s, U.S. named storm, U.S. earthquake and Canada earthquake risks.

The single tranche of notes will be exposed to these perils on an industry loss and aggregate basis across a four-year risk period up to the end of 2018. The trigger for each peril will be based on PCS reported county or province weighted industry losses, we’re told.

Named storm coverage is across 29 U.S. states, Puerto Rico and the District of Colombia, while earthquake coverage is across the U.S., DC and Canada.

The notes have an index attachment point of 650 points, but with a deductible of 45 index points per event. The exhaustion point is at an index level of 850, sources said. We understand that equates to an initial attachment probability of 4.16%, exhaustion probability of 2.84% and expected loss of 3.43%.

In terms of pricing, the single tranche of notes are being marketed to investors with a guidance range of 7% to 7.75% we’re told. So that looks like a multiple of at least 2 times the expected loss even at the low-end of guidance.

The notes feature a variable reset facility, as so many cat bonds do nowadays, which could allow SCOR to increase the expected loss to provide more cover, but with investors compensated accordingly with a higher coupon.

Interestingly, the collateral from the sale of the notes to ILS investors will be invested in EBRD notes, a collateral type which has not been so popular in recent years. The fear of negative rates is of course rife in the Eurozone, but we understand the deal will set a minimum interest of zero so a negative collateral return would not be possible even if rates in Europe declined further.

Update:

The single tranche of Series 2015-1 Class A notes remains sized at $150m. However the pricing guidance has been narrowed at the low-end of initial guidance with the initial 7% to 7.75% coupon range now tightened to 7% to 7.25%.

Update 2:

The $150m of Series 2015-1 Class A notes being issued by Atlas IX Capital have priced at the lowest end of guidance, at 7%. So resulting in a multiple at market of just slightly over 2 times the expected loss of 3.43%.

Update – July 2019:

The still rising losses from some of 2017’s U.S. hurricanes have tipped the Atlas IX Capital Series 2015-1 catastrophe bond notes into loss, resulting in a retrocessional reinsurance recovery for sponsor SCOR.

We’re told that the aggregate losses across 2017’s hurricanes Harvey, Irma and Maria have now surpassed the trigger point for the notes, meaning SCOR is due a payment from the outstanding principal.

In particular it is the loss creep from hurricane Irma that we understand took the notes over the attachment point.

The cat bond features an industry loss trigger, based on reporting by PCS. The Irma loss has been the one developing the most in recent months, so is likely the one that resulted in this payment coming due.

We understand that the index attachment point had been set at 850 index points in the aggregate for the 2017 risk period. The aggregate index level of the qualifying losses was raised to almost 885 in June, so triggering the cat bond.

As a result of this, we’re told that a recovery of almost $26 million is now due to SCOR, $25.913 million to be more precise.

Interestingly though, while hurricane Irma is likely to have been the specific event to tip the cat bond into loss, the majority of the aggregated loss index points actually came from hurricane Maria, we’re told.