Nakama Re Ltd. (Series 2014-2)
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Nakama Re Ltd. (Series 2014-2) - At a glance:
- Issuer / SPV: Nakama Re Ltd. (Series 2014-2)
- 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: $375m
- Trigger type: Indemnity
- Ratings: ?
- Date of issue: Dec 2014
Nakama Re Ltd. (Series 2014-2) - Full details
Nakama Re Ltd. is set to issue $200m of Series 2014-2 catastrophe bond notes in the second cat bond from Zenkyoren this year.
We understand that the deal is structured in two tranches which are currently both targeting $100m of protection each. As is typical, Nakama Re Ltd. will issue the two tranches of Series 2014-2 notes to fully-collateralize two underlying reinsurance contracts with Zenkyoren. Both tranches provide reinsurance protection on an ultimate net loss, or indemnity, triggered basis and coverage is for losses from earthquake shaking, tidal wave, flood, fire following and also sprinkler damage, we hear.
A Class 1 tranche of notes will provide Zenkyoren with earthquake reinsurance protection in Japan on a per-occurrence basis across a four year period. This tranche provides protection over a JPY 200 billion layer of Zenkyoren’s reinsurance program, from an attachment point of JPY 1.95 trillion to an exhaustion point at JPY 2.15 trillion of losses. That equates to an attachment probability of 0.63% and expected loss of 0.58%.
The other Class 2 tranche will provide protection on a three-year aggregate basis, across each of three overlapping risk periods over five full years in total. The Class 2 tranche is unusual for that reason, as it effectively has three three-year risk periods that each overlap, meaning that it effectively offers nine years of protection if each risk period is considered discreet of the others, although running in tandem at times.
The more complicated Class 2 tranche attaches at JPY 1.85 trillion to an exhaustion point at JPY 2.05 trillion, so again covering a JPY 200 billion layer. With protection being on a three-year aggregate basis, this tranche has a three-year attachment probability of 2.35%, which on an annual basis equates to 0.78%. The three-year expected loss is 2.09%, which is 0.70% on an annual basis. This tranche’s layer also features a franchise deductible of JPY 270 billion.
In terms of pricing, the per-occurence Class 1 notes are marketed with guidance of 2% to 2.25%, we understand, while the three-year aggregate Class 2 notes are marketed with guidance of 2.75% to 3%.
After two weeks of marketing to the ILS investor community, both tranches have increased in size. The Class 1 per-occurrence tranche of notes has increased in size by 75% to $175m, while the Class 2 aggregate tranche of notes has doubled in size to $200m, giving the cat bond a total expected size of $375m.
At the same time as upsizing the pricing has moved while the deal was marketed to investors, with both tranches looking set to price at the mid-point of the initial price guidance.
The per-occurrence Class 1 notes launched with coupon guidance of 2% to 2.25%, which we understand has now moved to the mid-point at 2.125%. Meanwhile, the three-year aggregate Class 2 notes which launched with guidance of 2.75% to 3%, look likely to also price at the mid-point at 2.875%.
At final pricing the Nakama Re 2014-2 catastrophe bond remained at $375m in size, while the pricing stayed at the revised coupon levels of 2.125% for the Class 1 notes and 2.875% for the Class 2 notes.
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