Nakama Re Ltd. (Series 2018-1)

Regular visitor to the catastrophe bond market and one of the world’s biggest reinsurance buyers Zenkyoren (the Japanese National Mutual Insurance Federation of Agricultural Cooperatives) has returned to the ILS market looking for at least $250 million of three-year aggregate reinsurance protection against Japanese earthquake risks, through a Nakama Re Ltd. (Series 2018-1) issuance.

Zenkyoren, or the Japanese National Mutual Insurance Federation of Agricultural Cooperatives as it is known, is looking to secure at least $250 million of three-year aggregate reinsurance coverage against Japanese earthquake risks through the issuance of two tranches of Series 2018-1 cat bond notes through its Nakama Re Ltd. special purpose reinsurance vehicle.

Nakama Re will aim to issue and sell two tranches of notes to ILS investors, the proceeds of which will be used to collateralise underlying reinsurance agreements that afford Zenkyoren with coverage against losses caused by earthquakes striking Japan, with the peril covered also including earthquake induced shaking, tsunami, fire, flood and sprinkler related water damage, we understand.

The two tranches of notes seek very different levels of coverage, with one sitting at the lower-end of Zenkyoren’s reinsurance tower and the other nearer the top-end.

While a three-year aggregate trigger, the transaction actually provides coverage until 2023, so across five years, with three overlapping risk periods of three years in length each.

The first tranche to be issued is a $200 million sized Series 2018-1 Class 1, which is the lower risk layer and will cover Zenkyoren’s losses from JPY 2.15 trillion up to JPY 2.5 trillion. The riskier currently $50 million Class 2 tranche will cover losses from JPY 1.2 trillion up to JLY 1.5 trillion. Both tranches feature a JPY 270 billion franchise deductible, we’re told.

The $200 million of Class 1 notes have an initial annualised attachment probability of 0.56%, an expected loss of 0.48% and are being offered to cat bond investors with pricing guidance of 2% to 2.2%, which is a little lower than the pricing of the 2016 Nakama Re Class 1 notes that cover a similar risk layer.

The $50 million of Class 2 notes have an attachment probability of 1.79%, an expected loss of 1.44% and are being offered with spread guidance of 3% to 3.25%, which is again lower than their 2016 equivalent, the Nakama Re 2016 Class 2 notes.

Update 1:

The transaction has been upsized by 180% to $700 million during marketing, as investor demand for the Nakama Re 2018-1 cat bond also pushed the pricing down.

Investor demand and Zenkyoren’s appetite for capital market protection has driven the target size much higher, with the deal now looking set to secure the insurer a $700 million chunk of reinsurance protection.

At the same time as increasing the issuance size, we’re told the pricing on both tranches of Nakama Re 2018-1 cat bond notes has dropped to the bottom of the initial guidance.

The now $500 million of Class 1 notes, which have an initial expected loss of 0.48% and were offered with pricing in a range from 2% to 2.2%, are now set to price at the bottom end of that range at 2%, we hear.

The now $200 million of Class 2 notes, with an initial expected loss of 1.44% and that launched with coupon guidance of 3% to 3.25%, are likely to now price at the bottom-end as well, with a coupon of 3%.

Update 2:

The Nakama Re 2018-1 cat bond remained at $700 million in size at pricing and the coupons were both fixed at the bottom end of guidance, with the $500 million tranche of Class 1 notes, which have an initial expected loss of 0.48%, have now been priced with a 2% coupon, we understand. While the $200 million tranche of Class 2 notes, with an initial expected loss of 1.44%, have now priced with a coupon of 3%.