Nakama Re Ltd. (Series 2014-1)
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Nakama Re Ltd. (Series 2014-1) - At a glance:
- Issuer / SPV: Nakama Re Ltd. (Series 2014-1)
- Cedent / Sponsor: Zenkyoren
- Placement / structuring agent/s: Aon Benfield Securities is sole structuring agent and bookrunner
- Risk modelling / calculation agents etc: AIR Worldwide
- Risks / Perils covered: Japan earthquake
- Size: $300m
- Trigger type: Indemnity
- Ratings: ?
- Date of issue: May 2014
Nakama Re Ltd. (Series 2014-1) - Full details
The Nakama Re 2014-1 cat bond issuance will see the vehicle issue two tranches of notes targeting at least $200m of fully-collateralized Japanese earthquake reinsurance protection for Zenkyoren. The covered peril of earthquake includes damage caused by shaking from the quake itself, tidal wave, flood, fire following and sprinkler damage we understand.
Nakama Re 2014-1 will provide Zenkyoren with reinsurance protection against earthquake losses using an indemnity trigger and on both a per-occurrence and annual aggregate basis, with each tranche of notes providing one type of cover. The term for this cat bond is almost four years, with maturity expected at the end of March 2018.
The two tranches of notes cover the same 200 billion JPY layer of Zenkyoren’s reinsurance program, we understand, but one as per-occurrence and one aggregate protection. The attachment point is set at JPY 1,750,000,000,000 and the exhaustion point at 1,950,000,000,000.
The Nakama Re 2014-1 cat bond has been cleverly structured so the aggregate tranche of notes features a deductible for each event, meaning that after one large quake the per-occurrence layer could be triggered and if it was large enough the aggregate too. However, a certain size of quake could trigger the per-occurrence layer but leave the aggregate with some principal left for aftershock of further events.
A $150m Series 2014-1 Class 1 tranche of per-occurrence cat bond notes being issued by Nakama Re features an attachment probability of 0.85%, an exhaustion probability of 0.65% and an expected loss of 0.75%.
A $50m Series 2014-1 Class 2 tranche of notes, which provide the annual aggregate protection, features an attachment probability of 0.85%, an exhaustion probability of 0.65% and an expected loss of 0.75%. This tranche of notes have a franchise deductible of JPY 270,000,000,000.
In terms of price guidance there is not much to choose between the two tranches of notes. The Class 1 per-occurrence tranche of notes is being offered with guidance of 2.25% to 2.5% while the Class 2 tranche is offered with a range of 2.25% to 2.75%, we understand.
Last years Nakama Re 2013 cat bond was slightly more risky with an expected loss of 0.9% but priced at 2.75%, so we would expect the pricing on Nakama Re 2014-1 to settle around the mid to lower end of the guidance ranges.
The covered business under the Nakama Re 2014-1 cat bond is said to be homeowners and small commercial or industrial buildings, largely from Zenkyorens personal lines book of business.
The Nakama Re 2014-1 catastrophe bond had upsized by 50% to $300m in size, with each of the tranches of notes now $150m. At the same time the pricing on the per-occurrence tranche settled at the low-end of guidance, while the annual aggregate settled at the mid-point.
The two tranches now look as follows. The Series 2014-1 Class 1 tranche of per-occurrence cat bond notes did not upsize, remaining at $150m. These notes launched with price guidance of 2.25% to 2.5% and at pricing this settled at the bottom end of the guidance at 2.25%.
Meanwhile the Series 2014-1 Class 2 tranche of notes grew by 200% from the $50m at launch to $150m in size at pricing. These notes launched with price guidance of 2.25% to 2.75% and at pricing this settled at the mid-point at 2.5%, Artemis understands.
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