Atmos Re DAC

This Atmos Re DAC cat bond is being sponsored by Italian primary insurer UnipolSai Assicurazioni S.p.A.. It is the first time this sponsor has sought out reinsurance protection for weather related risks, its only previous cat bond being for Italian earthquake risks.

Atmos Re DAC is a recently registered Irish domiciled special purpose vehicle, which will issue two tranches of notes to be sold to investors and the proceeds will be used to collateralise the underlying reinsurance agreements to protect UnipolSai from a range of severe weather related perils affecting Italy.

Atmos Re DAC is a recently registered Irish domiciled special purpose vehicle, which will issue two tranches of notes to be sold to investors and the proceeds will be used to collateralise the underlying reinsurance agreements to protect UnipolSai from a range of severe weather related perils affecting Italy.

The Atmos Re DAC notes will collateralize reinsurance agreements that will provide UnipolSai with three years of cover for perils described as atmospheric phenomenon, snow pressure and flood, we understand from sources.

Atmospheric phenomena includes all kinds of severe weather related risks, such as wind storms, hail storms, thunder storms, tornadoes, snow storms, blizzards and any linked perils, so we assume that includes rainfall and related flooding. In this way the atmostpheric phenomena peril bucket collects all the typical European severe weather type risks that an insurer may want to protect itself against in Italy.

Snow pressure is the risk of build ups and weight of snow or ice causing roof collapse and similar impacts to structures, we understand, while flood is both river, coastal and precipitation related.

Hence the coverage within this catastrophe bond is very broad and being focused solely on Italy possibly difficult for investors to model, as the availability of risk models for all of these perils and their resulting exposure footprint is limited.

The Atmos Re DAC cat bond will cover UnipolSai for losses from these perils for events across Italy on an annual aggregate and indemnity trigger basis.

Two tranches of notes are to be issued, with both being set to be funded up front in terms of collateral from the investors and premium payment from the sponsor, meaning the set-up works a little more like a zero-coupon bond, with no regular spread payments, we’re told.

The first Class A tranche of notes is the least risky of the two, targeting coverage for a $45 million layer of risk with an attachment probability of 1.31%, an initial expected loss of 0.45% and the coupon equivalent spread guidance is set in a range from 3.5% to 4.5%, we’re told. These notes would attach at €145 million of losses to UnipolSai’s covered business.

The second tranche is a riskier Class B layer, again a €45 million coverage layer, but this time with an attachment probability of 13.74%, an initial expected loss of 5.58% and the coupon equivalent spread guidance is set in a range from 8.5% to 10.5%, we’re told. These notes would attach at €100 million of losses to UnipolSai’s covered business.

It’s understood that the catastrophe risk modeller for the transaction is Towers Watson (Bermuda), which being part of the same group as the structuring agent and bookrunner Willis Towers Watson is a little unusual.

But being a specialised coverage, with a range of interesting features in terms of perils and for a wide range of not frequently well modelled weather and climatic phenomena, it’s not surprising that another name isn’t featured instead.

Update, Dec 21st 2018:

Investor sources said this cat bond transaction may have been delayed into 2019. Some concerns have been raised over a number of features with the deal, including the unmodelled nature of some perils and we’re told it is taking longer to issue than expected.

Update, Jan 29th 2019:

The Atmos Re catastrophe bond is now being offered to investors as a single tranche, €45 million transaction and with higher pricing.

The riskier Class B tranche of notes has been pulled from the transaction and this layer was offered in the traditional reinsurance market, we’re told.

Meanwhile, the Class A tranche remained at €45 million in size and has now been offered to ILS investors with coupon price guidance in a range from 4.25% to 4.75%.

Update, Feb 4th 2019:

The remaining €45 million Class A tranche of Atmos Re catastrophe bond notes were successfully priced at what was the top-end of the initial guidance range, as 4.5%.

Update – fourth-quarter, 2019:

The Atmos Re cat bond became exposed to losses through the third-quarter as UnipolSai suffered severe losses from adverse weather and called on its reinsurance provisions.

In November the Atmos Re cat bond notes were marked down for a total loss in the secondary market, implying investors faced losing all of their principal investments.