Embarcadero Re Ltd. (Series 2012-2)
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Embarcadero Re Ltd. (Series 2012-2) - At a glance:
- Issuer / SPV: Embarcadero Re Ltd. (Series 2012-2)
- Cedent / Sponsor: California Earthquake Authority
- Placement / structuring agent/s: Deutsche Bank Securities are sole structuring agent and bookrunner
- Risk modelling / calculation agents etc: AIR Worldwide
- Risks / Perils covered: California earthquake
- Size: $300m
- Trigger type: Indemnity
- Ratings: S&P: 'BB+'
- Date of issue: Jul 2012
- Date of maturity (dd/mm/yyyy): 07/08/2015
- Coupon / pricing yield Class A: 5.00%
Embarcadero Re Ltd. (Series 2012-2) - Full details
This new issuance, Embarcadero Re Ltd. (Series 2012-2), will see the Bermuda domiciled transformer offer investors a single tranche of Class A notes which are designed to provide the CEA with a source of multi-year risk transfer via a reinsurance agreement giving protection on an annual aggregate basis for a three-year risk period against property losses from earthquakes in the covered area. The funds from the sale of the notes are used to collateralize a reinsurance agreement between Embarcadero Re and the CEA. As with the other Embarcadero Re deals the trigger will be an indemnity trigger based on the CEA’s UNL.
We understand that the CEA is hoping for $150m of cover from this transaction.
The cover afforded by this 2012-2 issuance by Embarcadero Re will be for residential properties that are insured by the CEA and includes some renters, no commercial properties are covered by this deal. The transaction has an attchment point for the first loss occurrence period of $6.233 billion and an exhaustion point of $6.533 billion. The high attachment point makes this deal less risky than the other two Embarcadero Re deals, the Series 2011-1 deal attached at $3.287 billion of losses and the Series 2012-1 deal attached at $2.91 billion. So this latest cat bond from the CEA will provide a layer of reinsurance protection much higher up their overall program of protection.
Looking at historical events, the 1906 San Francisco earthquake would have caused a 100% loss of principal and the 1994 Northridge earthquake would have caused a 27.2% loss of principal.
The transaction is subject to an annual reset where attachment probabilities will be reset where it will be kept constant unless there are some qualifying losses which cause a dropdown event and eroded retention level on the transaction. This deal has an attachment probability in the first year of 0.77%.
Collateral from the sale of the notes will be invested in U.S. Treasury money market funds.
We’re told by contacts that this transaction is marketing with an expected coupon range of 4.5% to 5.25% above Treasuries, an coupon rate which reflects the lower risk nature of this transaction compared to the other Embarcadero Re deals.
Update: We’re told by sources, that Embarcadero Re Ltd. (Series 2012-2) will close at $300m in a single deal, having doubled in size from the $150m it began marketing at. This means that the CEA will have used up the total $300m mandate they had approved for use in cat bonds during 2012 and cat bonds will, when this deal completes, comprise somewhere around 20% of their overall risk transfer program.
We’re told that when the deal prices it will pay a coupon of Treasury Money Market Funds plus 5%. So pricing is towards the higher end of the range.
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