Hexagon Reinsurance DAC (Series 2017-1)

This is the first Hexagon Reinsurance DAC catastrophe bond transaction from mutual insurance society the Covéa Group.

The Hexagon Reinsurance cat bond will cover a range of Covéa Group insurer entities and subsidiaries against losses from European windstorms across a four-year term, with the covered entities including three named insurers MMA IARD SA, MAAF Assurances SA and GMF Assurances.

The Hexagon Reinsurance cat bond will provide €90 million (US$106m) of fully-collateralized reinsurance protection against European windstorms across a covered area that stretches across France, Andorra and Monaco.

The reinsurance protection provided by this Series 2017-1 issuance from Irish domiciled special purpose vehicle Hexagon Reinsurance DAC will be on an indemnity trigger and annual aggregate basis.

The transaction will be split into two classes of notes, we understand, both €45 million in size and covering a layer of Covéa Group’s reinsurance program of the same size, suggesting the deal size may be fixed and there is no room for the transaction to grow.

A €45 million Class A tranche of Series 2017-1 notes will be issued by Hexagon Reinsurance DAC to cover losses from €110 million to €155 million, giving them an initial attachment probability of 7.57% and an expected loss of 6.75%. This tranche is being offered to investors with coupon pricing in a range from 8.25% to 9%.

A €45 million Class B tranche of Series 2017-1 notes will be issued by Hexagon Re to cover a layer from €155 million to €200 million of losses for the sponsoring insurance group, giving them an initial attachment probability of 6.06% and expected loss of 5.52%. As a result these notes are the less risky tranche and so have price guidance of 6.75% to 7.5%.

Insurance business covered by the Hexagon Reinsurance DAC catastrophe bond include residential property, agricultural, certain industrial and commercial exposures.

Update 1:

The €90 million Hexagon Reinsurance DAC (Series 2017-1) catastrophe bond issuance, sponsored by French mutual insurance society Covéa Group, has seen its pricing drop to below the initial guidance range.

The €45 million Class A tranche of Series 2017-1 notes, which are the more risky having an expected loss of 6.75% launched with coupon pricing in a range from 8.25% to 9%, but we now understand that this tranche are being offered with price guidance of 8% to 8.25%.

The €45 million Class B tranche of Series 2017-1 notes, a less risky layer with an expected loss of 5.52%, launched with price guidance of 6.75% to 7.5%, but this has also dropped to below that initial range to 6.5% to 6.75%.

Update 2:

The pricing for both tranches of Hexagon Re 2017-1 cat bond notes settled at the low-end of the already reduced guidance.

So the Class A notes will pay investors an 8% coupon, while the Class B notes will pay a 6.5% coupon