Ursa Re Ltd. (Series 2017-1)

Ursa Re Ltd. will be issuing two tranches of Series 2017-1 notes, we understand, in order to collateralize reinsurance agreements that will provide the CEA with a three-year source of reinsurance from the capital markets, to protect it against losses due to earthquakes in California.

The notes will provide annual aggregate reinsurance protection to the sponsor and feature an indemnity trigger, while the protection will run for a three-year term.

A $200 million Class B tranche of notes will provide the CEA with protection from an attachment point of $5.1 billion and cover a $500 million layer of risk, resulting in an initial attachment probability of 1.19% and an expected loss of 1.11%. The Class B, lower risk tranche of notes, are being offered to investors with coupon price guidance in a range from 3% to 3.5%.

A $300 million Class E tranche is riskier, attaching at $1.7 billion, covering a $500 million layer and having an initial attachment probability of 3.72% and expected loss of 3.33%. The Class E tranche is offered with price guidance of 5.25% to 6%. The pricing multiple on this tranche will make this a very efficient layer of coverage for the CEA, if pricing settles within guidance.

An interesting feature of this cat bond issuance is the use of ‘Program Notes.’ Six tranches were actually structured and modelled, with the lest risky a Class A and running up to Class F, but only the B and E tranches were issued at this time.

The CEA can elect to issue any of the other tranches of notes, A, C, D, or F, in future issuances at any time prior to the end of the final risk period of the deal. That provides the CEA with ready-modelled and structured tranches of cat bond notes that could be issued to increase the capital markets participation in its reinsurance program, increasing the efficiency of future visits to the cat bond market.

Update 1:

We’re told the CEA’s target for this transaction is now for up to a $900 million issuance across the two tranches of notes.

We’re told that the pricing has not dropped, as has been seen with so many other recent cat bonds. In fact the Ursa Re 2017-1 cat bond is set to be priced at the upper end of the initial guidance on both tranches of notes.

The Class B tranche of notes, which launched at $200 million in size and have an initial expected loss of 1.11% were originally marketed with coupon price guidance in a range from 3% to 3.5%.

Now this Class B tranche is aiming for a size of $375 million to $425 million, we understand, while the price guidance has been fixed at the upper end of guidance at 3.5%.

Meanwhile, the Class E notes which were a $300 million layer at launch and have an initial expected loss of 3.33%, are now targeting $425 million to $475 million of coverage and the pricing is set to be fixed at 6%, which is the upper end of the initial 5.25% to 6% coupon guide range.

Update 2:

We’re told that the deal is set to upsize even more, with $925 million now the targeted size.

The Class B tranche of notes have grown further and are now set for $425 million we understand, while the price guidance remains fixed at the upper end of guidance at 3.5%.

The Class E notes are now set for completion at $500 million, with the pricing also fixed at the upper end of guidance at 6%.