Acorn Re cat bond grows to $300m, price moves to midpoint

The parametric U.S. west coast and California parametric earthquake catastrophe bond, Acorn Re Ltd. (Series 2015-1), has been upsized by 50% to a $300m issuance, while at the same time the price has been moved to the midpoint of guidance.

The Acorn Re 2015-1 catastrophe bond launched a couple of weeks ago, with reinsurance firm Hannover Re acting as ceding reinsurer in front of one named ceding insurer, Oak Tree Assurance Ltd., which is a Vermont domiciled captive insurance vehicle owned by the Kaiser Permanente group of health plan companies.

Oak Tree Assurance is a workers compensation captive for the Kaiser Permanente group, making it likely that the Acorn Re U.S. west coast earthquake cat bond will cover the Kaiser workers compensation captive’s insured exposure to earthquake risks.

Acorn Re Ltd. launched seeking to issue a $200m single tranche of Series 2015-1 Class A notes, to provide the cedants with collateralized reinsurance protection against U.S. earthquakes located around the west coast and focused on California-based exposures.

We understand that the tranche has been increased in size thanks to demand from ILS investors for these notes, upsizing the deal by 50% to offer a $300m tranche of notes to investors.

The coverage from this cat bond is based on a parametric trigger on a per-occurrence basis, across a three-year risk period. The parametric trigger is designed so that earthquakes in U.S. states surrounding California can qualify, under the terms of the deal, but the protection is focused on exposure within California itself.

At the same time as upsizing, the Acorn Re cat bond has also had its price guidance moved to the middle of initial guidance. When the deal launched, the coupon guidance was set at 3.15% to 3.65%. Now that has been fixed at 3.4%, right at the initial midpoint.

The Acorn Re 2015-1 cat bond is scheduled to reach final pricing today, we understand, with the 3.4% the likely mark. The transaction will be completed at the end of next week.

Once completed Kaiser Permanente will benefit from a source of parametric earthquake reinsurance coverage for losses suffered from its workers compensation captive vehicle, via its retrocessional agreement with Hannover Re. An interesting and innovative coverage product which could attract other sponsors to parametric cat bonds in the future.

You can read all about the Acorn Re Ltd. (Series 2015-1) catastrophe bond in the Artemis Deal Directory and in our article from two weeks ago announcing the deal’s launch.