Bermudian reinsurance firm Everest Re is back in the catastrophe bond market seeking a $300m, or greater, source of collateralized reinsurance protection for U.S. named storm and earthquake risks with a Kilimanjaro Re Ltd. (Series 2015-1) issuance.
It’s the third issuance under the Kilimanjaro Re Limited Bermuda domiciled special purpose insurance vehicle, following on from the $450m Kilimanjaro Re Ltd. (Series 2014-1) issued in April 2014 and the $500m Kilimanjaro Re Ltd. (Series 2014-2) cat bond issued a year ago in November 2014.
With this Kilimanjaro Re 2015-1 issuance, Artemis understands that Everest Re is looking to expand the fully-collateralized retrocessional reinsurance cover it receives from the capital markets. The notes issued, which will be in two tranches, will both have a four-year term and both provide cover across the U.S., Canada, District of Columbia and Puerto Rico.
So Kilimanjaro Re 2015-1 comes out of the blocks at $300m in size, split into two tranches of notes, each of which are exposed to the same perils across the covered area. Both tranches of notes will provide per-occurrence reinsurance protection to Everest Re and both use a location-weighted industry loss trigger, based on data reported by Property Claim Services (PCS).
The first tranche, a Kilimanjaro Re 2015-1 Class D tranche of notes, has a preliminary size of $125m. The Class D tranche has an initial index attachment point of $1.257 billion, covering a pro-rata share of losses up to an exhaustion point of $1.816 billion.
The second, Class E tranche of notes has a preliminary size of $175m and are the less risky of the two, with an initial index attachment point of $1.841 billion covering up to exhaustion at $2.521 billion.
The Class D notes have an initial attachment probability of 6.25%, we understand, with an initial expected loss of 4.71% (5.25% on a WSST sensitivity basis). This $125m tranche is being marketed to investors with price guidance of 9% to 9.75%, we’re told.
The Class E tranche meanwhile have an initial attachment probability of 3.58% and an initial expected loss of 2.7% (3% on a WSST sensitivity basis). This $175m tranche is being marketed to the investor base with price guidance in a range of 6.5% to 7%.
The pricing makes this Kilimanjaro Re 2015-1 the highest coupon catastrophe bond offered to the market since the start of the year, Galileo Re being the only higher coupon we’ve recorded in the Artemis Deal Directory in 2015 cat bond issuance.
That should serve to make the Kilimanjaro Re 2015-1 cat bond in demand for investors, especially in the lower yielding environment of the last few years. Perhaps Everest Re’s decision to cede a higher risk layer to the capital markets could stimulate other reinsurers or insurers to do the same, cat bond investors would certainly welcome that opportunity.
In terms of the multiple, or ratio of expected loss to potential pricing giving a view of the risk/return characteristics of the cat bond tranches, both are roughly aligned with recent issuance.
The Class D tranche, with has a multiple at the mid-point of price guidance of 1.99x at the base case, or 1.79x at the sensitivity case. The Class E tranche has a multiple at the mid-point of price guidance of 2.5x at the base case and 2.25x at the sensitivity case.
The Class D tranche multiple is a little lower, but that’s likely due to the higher coupon level, so perhaps we could see that tranche price above the mid-point. The Class E tranche however appears to offer an attractive multiple in the current market and could well find itself oversubscribed at that level.
The cat bond is being structured and marketed by Aon Securities, while the risk modelling services are from AIR Worldwide.
The Kilimanjaro Re 2015-1 cat bond is expected to complete this month, after which Everest Re will benefit from at least $1.25 billion of retrocessional reinsurance through its three cat bond issues. That will take Everest right up into the top five cat bond sponsors by risk capital outstanding, according to Artemis data.